Regulations for Corporations:
A historical account of TNC regulation
Désirée Abrahams
October 2005
*** Désirée Abrahams would like to thank Peter Utting of the United Nations Research Institute for Social Development (UNRISD) for his support in her initially drafting "Regulations for Corporations: A Historical Account", whilst working as a Research Assistant for UNRISD in Geneva, Switzerland.
Contents
§ Post World War Two: The ascendance of transnational corporations 3
§ The influence of the boycott 4
§ The rise and fall of the United Nations Centre on Transnational
Corporations 5
§ The onset of a Neoliberal ideology 6
§ Self-regulation takes centre stage 7
§ The multifaceted self-regulatory approaches 8
§ The birth of non-governmental forms of regulation 9
§ Civil regulation: a mélange 10
§ The complexity of multistakeholder initiatives 11
§ Diverse approaches in the new millennium 12
§ Civil society and the World Summit on Sustainable Development 14
§ Vestiges of the United Nations Centre on Transnational Corporations 15
§ The Framework Convention on Tobacco Control: a sign of things to come? 17
§ National law with cross border implications: a new trend? 18
§ Politics interfering with justice? 20
§ The Business Leaders Initiative on Human Rights: A glimmer of hope? 21
§ Conclusion 22
§ Bibliography 26
Regulations for Corporations
Post World War Two: The ascendance of transnational corporations
The political and economic global system has dramatically changed since the mid 1940s when the United Nations was established. At the time, there were only a handful of financially opulent transnational corporations (TNCs), unlike today where there are over 65,000 TNCs with 850,000 foreign affiliates (UNCTAD, 2003). In fact, TNCs have not only attained more economic power over the years but also, political clout through their ability to financially support and influence political systems (Korten, 1995).
It is no secret that some transnational companies financially benefited from the Holocaust. However, it was not only German companies that benefited from this atrocity. Other TNCs financially gained including some well known brands like Ford, General Motors and IBM (Wallace, 2003, Laurent, 2003). This dark history appears to have been an instrumental time in the economic progression of several contemporary transnational corporations. A handful of the top 100 non-financial TNCs found in the World Investment Report (2003) can be associated with this era (UNCTAD, 2003). But despite this association, in general this period was state centric and the influence of TNCs was relatively small compared to government. Their main role was one of manufacturer. Only later did some TNCs emerge and assume a financial lender role. Any political favours regarding trade and new markets they gained from business liaisons with government were hidden from the public domain. Yet over time, increasing evidence of such opaque business relationships emerged.
The first took place in the 1950s when the United Fruit Company helped orchestrate and overthrow the democratically elected Arbenz government of Guatemala. In 1954, President Jacobo Arbenz intended to implement a redistributive land reform bill and consequently, was perceived as a threat to the US transnational company (Schlesinger and Kinzer, 1999). During the invasion, Arbenz sought international redress from the United Nations Security Council. However, both Britain and France assisted the US by abstaining on Guatemala’s request for Security Council resolution S/PV. 675 para 194-195 to be put before the Committee (Curtis, 2003:102). The invasion continued and Guatemala returned to its historical right-wing rule and banana republic status.
Before long, this scandal was supplanted by another of the same token. The coup d’etat in Chile, first suggested by Pepsi Cola, later commanded by the International Telephone and Telegraph Company (ITT), carried out by the CIA and implemented at the grassroots by Augusto Pinochet took place in 1973 (Palast, 1998). At the time, both companies were big investors in Chile, especially ITT, who had a lot of money invested (Palast, 1998). Yet at the height of the Cold World era, where the domino theory obsessed the Nixon administration, it became critical that Chile should not fall under communist rule. Allende was the leader of the Popular Unity coalition, a socialist-communist party that had dreams of a nationalized economy and who were staunchly committed to nationalizing the copper industry. Notably, this scenario ran counter to the ITT and Nixon administration that had a financial stake in Chile.
The influence of the boycott
Corporate interference in domestic politics was not the only corporate abuse being committed during this period. Human, societal and environmental violations by transnational companies also came to light; some of them spinning a consumer boycott and campaign that further catapulted the call for international regulation. What started off as a small boycott in the early 1970s by a few mother and baby groups in Europe, grew to be one of the longest sustained campaigns against a transnational company. Before long, mother and baby and health groups from around the world unanimously opposed Nestlé’s marketing of infant baby milk formula in developing countries (Richter, 2001). Critics proclaimed that Nestlé’s adverts were deceptive (Richter 2001; Baby Milk Action Update, 1996). The argument followed that by using illusory, visual imagery Nestlé promoted their infant formula, which simultaneously discouraged breastfeeding. By providing free samples and supplies to poor health facilities and giving financial incentives to health officials based on their promotion of the product, some believed that Nestlé was engaging in unethical marketing (ibid.). At the same time, countless studies showed that since the introduction of the formula into developing countries, rates of infant mortality had started to rise (Jelliffe, 1968). This concern reached the United Nations (UN) and in 1970, the UN Protein-Calorie Advisory Group raised doubts about the industry’s practices (IBFAN, 2004).
By the 1960s the apartheid regime was firmly rooted in South Africa. Amongst other strategies, global boycotts were levied at the South African apartheid government and any company engaging in business with them. A gamut of boycotts prevailed including consumer, academic, economic, cultural and sport. It can be said that the financial involvement of a few international TNCs indirectly helped to prop up the regime. Reaping financial rewards also made them directly implicated. With other past corporate misdemeanours near in view, together these incidents produced the final push towards the creation of a United Nations organization that would concentrate on examining the effects of transnational corporations on society.
The rise and fall of the United Nations Centre for Transnational Corporations
The United Nations Centre for Transnational Corporations (UNCTC) was inaugurated in 1977. Its mandate was carefully drafted to include monitoring transnational companies’ positive and negative, social and environmental impact. However, the arrival of the Centre gave rise to mixed emotions. Transnational companies and some developed nations were openly hostile, while, developing countries felt elated after years of negotiation for its existence. Calls for the UNCTC came within petitions for a New International Economic Order (NIEO), which at that time occupied a unique political standing due to its drivers being drawn from the Non Aligned Movement. One of the main posits of the NIEO was the assertion for economic self-determination. The Declaration on the Establishment of the New International Economic Order stated that, “every country has the right to adopt the economic and social system that it deems to be the most appropriate for its own development and not to be subjected to discrimination of any kind”. But as years passed, it became obvious that neither the NIEO nor the UNCTC were destined for an easy path ahead. Northern governments felt threatened by the Southern governments’ solidarity, exhibited in their unanimous demands for international laws to safeguard their natural resources, trading rights, as well as secure access to capital and technology (Girvan, 1976; Gleckman, 1995).
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