WHY DOES SOCIETY NEED CORPORATE ACCOUNTABILITY?
The concept of corporate accountability repositions the citizen’s struggle for democracy and equity in society by placing a premium on the power that businesses exercise to capture the state and advance private interests, often to the detriment of society at large. It is a relatively new concept that posits that businesses are obligated to serve the public interest and respect human rights, especially if states are unable or unwilling to fully serve the interests of their citizens and if markets are incapable of fairly distributing goods and services. Not unlike public officials, businesses should be held responsible for exercising their powers in accordance with internationally recognized human rights and environmental standards. The Corporate Accountability Movement seeks to go beyond soft or voluntary forms of accountability, such as Corporate Social Responsibility, and achieve a normative change that would make it obligatory for businesses to adhere to higher disclosure and transparency standards, human rights and environmental norms, and the public interest in general.
WHAT DO THESE PEOPLE HAVE IN COMMON?
THEY ARE NEGATIVELY AFFECTED BY CORPORATE MALFEASANCE. WHILE THE NEED FOR GOVERNMENT TRANSPARENCY AND ACCOUNTABILITY IS WELL ESTABLISHED TODAY IN OUR SOCIETIES, THE QUESTIONS REMAIN: WHAT IS CORPORATE ACCOUNTABILITY AND WHY DO WE NEED IT?
THE GLASS CEILING
THE CORPORATE ACCOUNTABILITY MOVEMENT IS A STRATEGIC, CITIZEN-LED COUNTERWEIGHT TO THE POWER THAT PRIVATE SECTOR ELITES EXERCISE TO EXCLUDE CITIZENS FROM PUBLIC DECISION-MAKING IN ORDER TO SHAPE POLICY FOR THEIR OWN ADVANTAGE.
Most Latin American economies present a textbook example of state capture, which the literature on corruption defines as efforts of firms to shape the laws, policies, and regulations of the state to their own advantage by providing illicit gains to public officials. Moreover, because business elites tend to use their power to block policy reforms that could put an end to these advantages, state capture is simultaneously a symptom and a cause of the weak public institutions and dysfunctional markets that characterize most Latin American countries.
A landmark UNDP study of elites, civil society, and democracy in Latin America states that 80% of regional leaders believe that private economic groups (legitimate and illicit) exercise too much power, which “limits the capacity of governments to respond to the demands of their citizens.” This implies a literal hijacking of the rule of law – for example, bribes to judges to influence court decisions are not uncommon – and the exclusion of communities and other stakeholders from public decision-making. The graph below illustrates the current distribution of power in most Latin American countries. The power is concentrated in the hands of the business elite, which co-opts the public sector to the detriment of a disempowered civil society. Because the government has been captured by a powerful yet unaccountable business elites, the state cannot or will not respond to the demands of its citizens to enforce basic rights. In other words, the state has surrendered to vested business interests and the transparency and accountability demands of citizens soon hit an insurmountable glass ceiling.
This is why, in order to fix captured states and economies, public sector accountability needs to be complemented by private sector accountability, and vice versa.
THE NEGATIVE EFFECTS OF CORPORATE OPACITY AND MALFEASANCE
THE NEGATIVE EFFECTS BROUGHT ABOUT BY THE LACK OF CORPORATE ACCOUNTABILITY ARE ILLUSTRATED IN THE CASE OF MEXICO, A COUNTRY WHERE DEEPLY ROOTED STRUCTURAL DEFICIENCIES HAVE PREVENTED ECONOMIC DEVELOPMENT AND CONTRIBUTED TO RISING INEQUALITY.
These institutional-political, socio-economic, and financial deficiencies date back to the conquista if not earlier, but grew worse during the 1990s as neoliberal reforms failed to deliver on promises of development and economic growth. Instead, corruption and impunity belied free market reforms. As Álvaro Vargas Llosa described, the norm became to hand over state-owned enterprises to government cronies under monopoly conditions, which exacerbated a system characterized by elite control over public decision-making. To date this crony capitalistic system has not yet been dismantled and, as a consequence, one or two big companies dominate almost every industry in the country – from industrial bakeries to mobile telecommunications to soft drink distribution. According to some estimates, in 30 percent of the economy consumers are charged, on average, 40% more than those in functional or competitive markets. Furthermore, the prevalence of monopolies or duopolies results in a 40% price increase in medicines and an 18% increase in the price of dairy products. These figures are rather staggering, especially if we consider the number of poor people in Mexico, which, according to the Monterrey Institute of Technology, amounts to roughly half of the total population or 53 million.
In 2012, the Federal Competition Commission (CFC) tried to impose a 12 billion peso ($1 billion USD) fine on Telcel, which controls 70% of Mexico’s cell phone market and is owned by Carlos Slim, the world’s richest individual. The CFC claimed that the telecommunications company had abused its dominant position by charging competing networks prohibitive connection fees. Previously, the Organization for Economic Co-operation and Development (OECD) found that the same company had recently (2005-09) overcharged Mexican consumers $6.5 billion USD a year for landline usage (the equivalent of 6% of the average Mexican household’s income), most of which has contributed significantly to Slim’s wealth over the years. Though a $1 billion USD fine might seem negligible compared to the profits derived from running a monopoly, Telcel forced the regulatory agency to reduce interconnection tariffs across the board.
As Mexico’s example demonstrates, when the rule of law and fledgling democratic mechanisms fail to check businesses or balance the interests of their stakeholders, corporate malfeasance is foisted on society as a whole, mostly to the detriment of consumers, communities, workers, and civil society as a whole.
CAN YOU IMAGINE A WORLD WHERE CORPORATIONS ARE HELD ACCOUNTABLE?
ALL STAKEHOLDERS WOULD BENEFIT SUBSTANTIALLY!
Workers’ voices would be heard and their labor conditions would improve.
Communities would exercise their right to free, prior, and informed consent.
Regulators would be assisted by a vigilant civil society.
Consumers would pay less for better quality goods and services.
Shareholders would be better protected from insider trading, fiduciary misconduct, and poor corporate governance.
Lenders would be able to conduct improved due diligence and better assess investment risks.
Competitors would face less barriers to entry and enjoy a more level playing field.
TACTICS & TOOLS
NUMEROUS TACTICS AND TOOLS ARE AVAILABLE FOR STAKEHOLDERS TO PUSH FOR CHANGE AND ADVOCATE FOR IMPROVED CORPORATE TRANSPARENCY AND ACCOUNTABILITY. BELOW IS A LIST FOLLOWED BY GENERAL DEFINITIONS AND EXAMPLES.
|The active collection, verification, and use of information about business behavior; includes gathering information, observing events, and discussions with stakeholders to pursue remedies. Monitoring generally takes place over time. For example, Amazon Watch monitors concessions held by oil companies to scan for risks to local communities.|
|The use of equity, debt, procurement, and taxation strategies to influence owners, lenders, and fiduciaries to be held accountable to diverse stakeholders. For example, communal landowners and Mexican NGO ProDESC pressure shareholders of a mining company to improve corporate accountability.|
|Facilitation of or participation in conversations or discussions to improve business behavior or resolve problems of corporate malfeasance. For example, the government of Peru facilitates multi-stakeholder dialogues so that local governments and communities can meet with mining companies to air grievances and pursue remedies.|
|Often known as “name and shame,” this tactic involves using traditional or social media to publicly state that a company or investor has done something wrong. For example, following repeated loss of life in Bangladesh’s garment industry, labor rights advocates denounced major clothing brands through international media outlets.|
|The process of bringing people together around common issues to achieve change through collective power. For example, local residents affected by a company’s environmental waste build an organization amongst themselves to collectively pressure regulators and business leaders to clean up the mess.|
|Traditional and creative uses of the law, often going beyond technical fixes and service provision; creating legal precedents for lasting change. For example, Earth Rights International uses the Alien Torts Claims Act to sue corporations for human rights abuses overseas.|
|A wide range of activities that influence decision makers, such as litigation, lobbying, public education and capacity building, relationship building, forming networks, and leadership development. For example, corporate accountability advocates in Europe lobby the European Commission to require companies to publish information about their environmental and social performance.|