Participating in Governance: the Social Responsibility of Companies and NGOs

By Chris Marsden

(Chris Marsden is Chair of the Amnesty International (UK) Business Group and also Chair of Trustees of the Business and Human Rights Resource Centre, a separate NGO responsible for the leading Business and Human Rights website. He is also a teacher on corporate social responsibility issues on graduate and executive programmes. The opinions expressed in this paper are his own and should not be attributed to those of any of the organisations he works with.)


Governing for the Common Interest

At a recent conference on sustainable development, the CEO of a leading multinational company was reported in response to the question ‘what next?’ to have said reluctantly ‘I suppose I will have to tell my Board to prepare for governance’.  He was referring to the governance of global social and environmental issues not those normally associated with corporate governance. Many who blame multinational companies for many of the ills of the world would be horrified at the prospect. And it is true that too many such companies recently have shown themselves to be deficient in their own governance that it might seem absurd to suggest that they should participate in governance of issues beyond their traditional competence. Yet, this paper will argue, that is exactly what is needed. It is already happening de facto, and it needs to be more widely recognised and done much better.  

Market capitalism or business pursuit of profits in a competitive market place is the dominant economic mechanism for providing most of the world’s material needs. It was given a huge sense of legitimacy in the rapid growth of the post 1989 global economy and, in spite of its many imperfections, it is unlikely to be substituted by any alternative mechanism in the foreseeable future. However, markets cannot operate in a way that promotes both private and common interests without effective regulation. It is the purpose of this paper to argue that such effective systems of regulation or governance often do not exist and that it is the social responsibility of companies and NGOs to participate in helping to create them.  

The common interest is what is beneficial to the whole of a society, or in today’s global thinking, the world, that is not served by pursuit of a multitude of individual interests. In economics this was classically illustrated by the ‘problem of the commons’, the free use of common grazing land, where it was in the interests of the marginal extra farmer to add his animals to an already overcrowded area but to the detriment of overall production. Modern examples of dealing with this problem are the attempted governance of fishing in the North Sea or attempts to conserve the Amazon rain forests from the encroachment of private commercial interests. In accounting it is increasingly recognised as the failure of decisions made on the basis of seeking maximum return on man made and financial capital to the detriment of, mainly unrecognised, value flows from natural or ecological capital and social capital. Decisions about the common interest and its governance are at the heart of politics because they require difficult choices about the relative welfare of different groups within a society or indeed between societies. How well or badly we determine the processes whereby these choices are made, or by default not made, will be crucial to the future of human kind and whether they like it or not companies and NGOs are part of these processes.  

In economies, where there is or has traditionally been adequate regulation and governance of the common interest by democratically elected governments, electorates clearly support variants of the market system as an acceptable way of determining the production and distribution of private goods and services. Most of the political argument is about the extent of government taxation, spending and regulation for the common good. In these economies corporate social responsibility (CSR) is essentially a matter of running an efficient and profitable enterprise, legal compliance, and payment of taxes. Additional interventions in social issues are discretionary; depending on a company’s view of its long term business interests and its own values. The role of civil society interest groups or NGOs in such circumstances is to promote their respective causes, act as a watchdog for their particular interest and lobby for change through legitimate channels.  

This rose-tinted view of a democratically governed, efficient market economy has taken some hard knocks recently, especially in the dominant role model, the USA . Rules have been blatantly flouted and positions of trust cynically abused. Narrow and short term powerful private interests have been seen to dominate political decisions, particularly on environmental and fair trade issues regarding the common good. Also, even traditionally strong government systems have found it increasingly difficult to keep up with, identify and regulate to defend the ‘common’ interest against commercial uses and abuses of rapidly changing science and technology.  

Meanwhile, all national economies are becoming much harder to regulate, tax and govern in the common interest because of the rapid development of global markets which have no respect for national borders. The global economy is not effectively governed. Although some national governments, their citizens and their home-based multinational companies, particularly in parts of North America and Europe , may still believe otherwise, current national and international governance systems are neither up to the task nor representative of the global common interest, being dominated essentially by the interests of the rich and powerful. It would be nice to imagine that the authors of the Universal Declaration of Human Rights had this deficiency in mind when, in 1946, they called on ‘every individual and organ of society’ to play their part in securing the observance of the rights contained within it. If, as the UN Sub-Commission’s Draft Norms on Human Rights for Business imply, this covers caring for all aspects of the social and environmental common good, then it is a call on companies and individuals, often organised in civil society interest groups or non-government organisations (NGOs) to participate in governance.  

It might be a life sciences company experimenting with new bio-technology; a consumer goods or retail company sourcing from countries with human rights abusing labour practices; a financial services company determining its ethical investment strategy; a pharmaceutical company being challenged to provide generic drugs at marginal cost to poor countries; a construction company facing local resettlement issues over a dam project; a utilities company concerned with accessing its services to the poorest sections of society; a tourism company selling package tours to areas of environmental sensitivity; or an oil or mining company arranging security for its operations in an area of civil conflict. It might be a company policy decision not to make or take bribes, to sign up for a code of practice which it will use to put pressure on rogue host governments or to publish all its revenue and tax payments made to host governments in order to promote transparency. It might even be a decision buy a company operating in a country where known human rights abuses are taking place to close its eyes, keep its head down and, in effect, tacitly support the status quo. Any company making decisions like these, or NGOs working to influence them are, de facto, involved in governance.  

The Shorter Oxford English Dictionary defines ‘governance’ slightly more broadly than ‘government’. Governance includes concepts such as the manner of governing, the method of management, system of regulations, mode of living, behaviour, demeanour and wise self-command'. These aspects of governance do not necessarily have to come from 'the governing power in a state' by 'the body of persons charged with the duty of governing', which is the main definition of government. This is not to down play the important and legitimate role of national, democratically elected governments nor, hopefully, ultimately strengthened institutions of international governance. National governments still have great power, particularly to influence if not always to control behaviour. Where this influence is inadequate, however, companies and civil society organisations have a duty or social responsibility to do all they reasonably can to promote the common good. This gives ‘Corporate Social Responsibility’ (CSR) a much wider and deeper meaning than often assumed. It gives legitimacy not only for companies to engage in issues which previously might have been considered the preserve of governments but also to NGOs both to pressurise companies to engage in such issues and also to partner with those companies in seeking solutions.  

This is a big challenge to traditional thinking about the right and proper roles of governments, companies and NGOs and to their competencies in performing them.  It means accepting that the world and the power relationships between these key actors has changed. It means understanding that companies and NGOs, whether they or anyone else like it or not and whether they do so actively or passively, are participating in governance. New visions for and consensus on future global governance may eventually emerge from such gatherings as the World Summit on Sustainable Development, The World Economic Forum or The World Social Forum. In the meanwhile, however, the world economy continues to function with inadequate governance and it is up to all responsible actors to do what they can to make it work as well as possible.  

National governments can, of course, still do a great deal. There are still opportunities for regulation without destroying the international competitiveness of domestic companies, for instance in requiring companies to account for and report on their social performance. Governments still have huge powers of patronage, for instance through honours systems and providing or denying access to the leadership establishment. They are large customers of the private sector with major opportunities to insert environmental and social performance criteria into contracts. They can also exercise global leadership through their participation in the governance of the United Nations, the World Bank and the World Trade Organisation. Governments could do a great deal to promote more effective governance by openly recognising the potential contribution of companies and NGOs as described below and to facilitate the growth and effectiveness of that contribution.



A company’s social responsibility covers four spheres of control or influence: its own core operations, its relationships with partners, suppliers and contractors, its relationships with the communities where it operates and, fourthly, its ability to have positive affect, where it can, on the major common interest issues. These issues include global warming, eco-system losses, health, education, poverty and political and civil human rights.  

The way a company conducts is own core operations not only benefits the people working with and depending on the organisation but also sets an example more widely, especially in countries with no tradition of well governed, responsible business. This governance, as always, starts at the top with a company’s Board having a clear statement of company goals, vision and values and a management structure and accountability system, which carries it out. Core operations cover everything from honest trading practices, quality of product, customer guarantees and product life cycle management, through emissions, energy and waste control to labour issues of health and safety, working conditions and freedom of association.  

Larger companies, particularly transnationals operating in or sourcing from developing, less well governed economies, have major potential influence over the environmental and social performance of their partners, suppliers and contractors. It is those companies’ social responsibility to exercise that influence through communication of their own policies and ensuring that contracts reflect compliance with them. Managing this in practice may be very difficult, especially where a company has many suppliers or where issues like child labour require long term strategies not instant fixes, but it is the responsibility of the dominant companies involved to demonstrate that they are doing all that can reasonably be expected.  

Similarly it is the responsibility of any company to be aware of and manage as positively as possible its impacts on the communities where it operates. Ideally, although rarely in practice, this implies carrying out a full social and environmental risk analysis with full stakeholder engagement before investment decisions are made – and being prepared not to invest if the social and environmental risks are seen as too great. More commonly it implies understanding community issues arising from existing operations and investment decisions already made or inevitable in terms of realpolitik and managing these in a way that fully engages community stakeholders and is as transparent as possible.  Issues will include impact on indigenous people, provision of local infrastructure and services, especially where these are poor and a company is creating its own, local employment and sourcing, education and training and often sensitive plans for site closure or the ending, say, of a construction phase. In some cases it will also imply managing the security of a site in a way that minimises adverse effects on local communities, particularly in conflict zones – a hugely difficult but increasingly common problem for some companies particularly in the extractive industries.  

Finally it is also part of a large, influential company’s social responsibility not only to anticipate and manage the social and environmental issues on which it has an impact but also actively to engage in trying to bring about the resolution of those issues in the wider community. This is the most demanding, and to many still controversial, call on companies to participate in governance.  It implies engaging with other leading companies, international agencies and NGOs to agree voluntary, but in terms of emerging international law, increasingly binding operating principles and codes of conduct. It means asserting these principles to ministers and officials in countries where good governance is lacking and according to circumstances applying influence and pressure on those governments and their administrations to apply more environmentally and socially responsible practices. These are issues of critical importance to sustainable development and human rights such as environmental footprint, poverty alleviation, freedom from abuse, corruption, money laundering, and use of tax revenues.  Whether a company in a position to make an effective contribution chooses actively to engage in these issues or to ignore them, it is a governance decision. It is to be hoped that multinational companies will increasingly be held to account for their performance in these matters, not only by watchdog NGOs but also by the governments of their home-based countries.  

Sceptics will argue that it is unrealistic to expect companies, in pursuit of their private interest and that of their shareholders, to do anything that cannot be supported by a business case. Also, they will argue, many companies cannot even govern themselves responsibly let alone participate effectively in wider governance issues. Much emphasis has been given to the ‘business case’ for CSR recently as a result and it is clearly often a necessary tactic to gain the attention of bottom line focused managers. However, there are often serious limitations to the CSR business case for many companies when compared to apparent commercial advantage and shareholder value. Pursuit of least cost outcomes to a company and concern for social impact are rarely win-win, at least in the short term. That is when decisions on the basis of what is right and wrong, particularly what is consistent with previously agreed company principles regarding its purpose and behaviour standards becomes so important – the moral case.  It is up to those who want to influence companies to be more socially responsible, governments and NGOs, to work not only on the business case, for instance by raising the cost of reputation damage, but also on the moral case. They need to persuade companies that their purpose is to create value for society not just for their shareholders and that this requires them to concern themselves with outcomes for all their stakeholders and not just themselves. A good start, of course, would be to get wider stakeholder representation onto company boards or, at least, create an expectation of full stakeholder engagement and transparent social reporting as a normal part of mainstream business activity. It is conceivable that as the arguments for doing the right thing, for instance in not taking bribes, publishing what companies pay to governments, insisting on basic human rights standards, become more commonplace and are seen both inside and outside companies as the right way to make such decisions, doing business this way will become more the norm. Paradoxically, this might ultimately create a more robust ‘business case’ for doing business ethically and a business disadvantage for not doing so. 



The role of civil society interest groups or NGOs in well, democratically governed societies is to promote their respective causes, act as watchdogs for their particular interest and lobby for change through legitimate channels. In many cases these NGOs are also engaged by governments in policy deliberations and sometimes also in policy delivery. More radical NGOs will push at and even cross the boundaries of conventional legality but that is the nature of this hugely varied and hard to categorise type of organisation and the product of having a free society. Such radicalism, as in the Seattle demonstrations, can act as useful wake up call to sleepy international governance agencies.  

In less free or less well-governed societies, NGOs often have to operate more covertly and rely on their links to NGOs in other countries to take up their causes. One of the main features of recent globalisation developments has been the ability of NGOs to network internationally and bring local concerns to international attention, increasingly through campaigns against transnational companies. Focused on sources of power, most of the attention of NGOs has traditionally been directed at governments, but in recent years, particularly among international NGOs this attention has extended, often dramatically, to transnational companies. This, in itself, is a strong indicator of perceived power changes in global realpolitik and the vulnerability of companies to reputation damaging campaigns.  

The recent expansion of Amnesty International’s focus from national governments to include large companies is an example of this trend. Amnesty has recognised the importance of transnational companies in promoting and delivering human rights through their operations and external influences. The Amnesty (UK) Business Group was formed to create a forum on business and human rights and to press leading UK companies to develop human rights policies and implementation strategies. After ten years this work is now being successfully integrated into mainstream Amnesty objectives and campaigning throughout its sections in many countries. So far the main thrust of this work has been making companies aware of their human rights responsibilities and helping them develop appropriate policy frameworks. This has been done through a mixture of written materials, seminars and training and specific meetings with companies. The Business Group has also been working with the Socially Responsible Investment (SRI) sector to help develop criteria for judging company social performance. The Group has worked closely with the development of the UN Sub-Commission’s Draft Norms on Human Rights for Business and Amnesty’s international leadership is an active participant on the Global Compact. Amnesty is also lobbying the UK government and the EU Commission for mandatory corporate social reporting.  

There is much debate in Amnesty and among other leading international NGOs about the right approach to influencing companies. Some argue that the only approach likely to succeed is an oppositional one, where NGOs campaign against companies on specific issues working through the media, on community groups, customers and through shareholder meetings to undermine a company’s reputation and, hopefully, profitability. They also argue that initiatives like the Global Compact are far too slow to deliver real progress and act as smokescreens behind which poorly performing companies can hide.  Others argue that engagement at strategic (e.g. Global Compact) level and directly with companies is essential if companies are not just to be pilloried for being part of the problem but persuaded to become part of the solution.  Increasingly the most successful NGOs will find ways of being both effective watchdogs, whistleblowers and campaigners while also managing to engage with companies in cross sectoral partnerships to devise and deliver solutions to these huge global problems. The work of the Forestry and Marine Stewardship Councils, the Kimberley Process on conflict diamonds and some encouraging recent work on cocoa sourcing are all examples of positive cross-sector working. In collaborating like this this, however, NGOs must be constantly wary of the potential of cosy partnerships to corrupt and must never diminish their essential role as a countervailing power to companies. This is participation in governance. It is the right and proper role of a NGO representing a constituency of concern about any social issue, in Amnesty’s case human rights.  

Ideally as much governance as possible should be concentrated in the hands of democratically chosen authorities and companies and NGOs should work to promote formal structures of government wherever they are lacking. This includes supporting necessary legislation designed to raise the standards of the many, for instance introducing mandatory social reporting. However, this is likely to take a long time and meanwhile the reality will be one of inadequate governance in many countries and particularly of the global system as a whole. Until such time as this governance deficit is adequately addressed, it is important that both leading international companies and NGOs understand that they are an integral part of a de facto global governance process and that they take this responsibility seriously. This paper has argued that it is their legitimate social responsibility to get involved in the politics of decision making; working, through counterveiling power or partnership as may be appropriate to different situations, to identify the common interest and helping to resolve the conflicts between private and common interests. This is not ideal. It is unlikely that companies, with managers brought up on the gospel of maximisation of shareholder value, or NGOs, with their members’ inevitably partial view of the world, can ever be very good at it, but in the current state of governance deficit there is no alternative. Pragmatically, second best solutions will constantly have to be sought, negotiated and worked through until such time as a better system is created.

January 2003