Responsible business practice and social inclusion - BSL

Responsible business practice and social inclusion: responding to governance gaps

Serena Lillywhite Manager, Sustainable Business Brotherhood of St Laurence

21 November 2008

Social Inclusion and Corporate Responsibility Workshop Proceedings

The Social Inclusion and Corporate Responsibility Workshop was held on the 21st of November 2008 at the Metropole Conference Centre in Fitzroy, Victoria. It was facilitated by Linda Funnell-Milner (Director, Corporate ResponseAbility) and coordinated by Emer Diviney. The proceedings are aimed at fostering, informing and stimulating public reflection, discussion, debate, research, and policy initiatives to address one of the central challenges facing contemporary Australian governments, industries and communities. They are published on the Brotherhood of St Laurence’s website at: http://www.bsl.org.au/main.asp?PageId=6175 These proceedings were edited by Serena Lillywhite with assistance from Arnaud Gallois. Assistance with online publication by Kristine Philipp.

About the Author Serena Lillywhite is Manager, Sustainable Business, at the Brotherhood of St Laurence. She is an active corporate responsibility practitioner, researcher and advocate. Serena has expertise and experience across a range of areas such as responsible supply chain management, labour and human rights in China, and issues facing home based outworkers in the textile sector in Australia. Serena is the Australian representative on the OECD Watch Coordinating Committee, and is a regular speaker at the OECD Investment Committee and other forums. Serena has contributed to the two Australian Federal Government inquiries into corporate responsibility and works regularly with the business community to foster dialogue and multi-stakeholder approaches to ethical business practices. She holds a Masters in International Business from the University of Melbourne. Email: [email protected] Published by Brotherhood of St Laurence Research & Policy Centre 67 Brunswick Street Fitzroy VIC 3065 ABN 24 603 467 024 Phone: (03) 9483 1364 www.bsl.org.au/ The views expressed in the proceedings, including this paper, do not necessarily reflect any official position of the publishers. We expect and support the further development of these ideas and their subsequent publication in journal or book form. Copyright rests with the author, 2008. This publication may be downloaded for use in private study, research, criticism and review. Permission is granted for librarians to download a single copy to be made available to library users. The publication may not be reproduced in any other form without the permission of the author – see institutional and contact details above.

Brotherhood of St Laurence Social Inclusion and Corporate Responsibility Workshop Proceedings 21 November 2008 Serena Lillywhite, Responsible business practice and social inclusion 2

Introduction This paper has been developed for the Brotherhood of St Laurence social inclusion seminar series. In light of other papers (particularly those focused on partnership models), it gives consideration to two fundamental issues: 1. What aspects of the social inclusion agenda are critical for sustainable business development? 2. What governance arrangements, institutions and agencies are needed to ensure responsible business practice and socially inclusive policy coherence? The paper highlights the importance of sustainable, decent employment as fundamental to both social inclusion policy and economic prosperity. Further, the protection and upholding of human rights will support wealth creation in the broadest context, encourage global policy coherence and promote sustainable development in the global economy. This suggests a need to ensure the Australian social inclusion agenda is developed in response to both global economic drivers and local needs. In attempting to link the emerging social inclusion policy with corporate social responsibility (CSR), it makes sense to recognise the international dimension. The global financial crisis has clearly demonstrated the interconnectedness of not only capital, but perhaps more importantly, how the ‘shock waves’ that reverberate throughout global labour markets, economies and communities, have significant negative impact on those already most disadvantaged. According to the International Labour Organisation (ILO) the global financial crisis could increase world unemployment by an estimated 20 million (ILO 2008a) Not surprisingly, global rescue measures are at hand. An emphasis on strengthened, more transparent regulatory frameworks is expected. Greater accountability through policy and practice coherence, reporting and independent monitoring, will be important pillars of future global and national governance architecture. The report from the Australia 2020 summit recommends re-positioning Australia as an effective global citizen through middle power diplomacy and renewed engagement to ensure regional security and economic and social prosperity (Australia 2020 Summit 2008). This creates an opportunity to strengthen the social dimensions of corporate responsibility through alignment with the social inclusion agenda. However, this will require a more robust governance framework to ensure sustainable business development, beyond criticism of ‘window dressing’ and ‘corporate spin’. A governance framework is suggested that includes regulation, incentives, multistakeholder initiatives and access to remedies for individuals and communities


adversely affected by poor business conduct. In particular, the ‘ILO Declaration on Social Justice for a Fair Globalization’, incorporating the ‘Decent Work Agenda’, and the business and human rights framework proposed by Professor John Ruggie, Special Representative to the Secretary-General, United Nations Human Rights Council ‘Protect, Respect and Remedy’, are the recommended platform for CSR and social inclusion policy coherence. Corporate responsibility and social inclusion – what’s the link? CSR frameworks and reporting mechanisms are complex and varied. They include: intergovernmental tools, e.g. the ILO conventions and the OECD Guidelines for Multinational Enterprises, multi-stakeholder initiatives such as the UN Global Compact, the Ethical Trading Initiative and the Global Reporting Initiative, business association and unilaterally developed company CSR mechanisms. Despite the plethora of initiatives, most, if not all, are based on internationally recognised principles (i.e. the ILO Fundamental Principles and Rights at Work, Universal Declaration of Human Rights) that uphold the fundamentals of social justice and equity. The concept of CSR is not constrained be geographic borders. There is growing consensus that the principles of responsible business practice apply, regardless of where business occurs. Therefore, if the social inclusion agenda is to be ‘mainstreamed’ into CSR frameworks, and more importantly business operations, a global perspective is needed. Social prosperity is clearly an issue of global importance. The social inclusion agenda provides some scope to re-think the role, responsibilities and influence of non-state actors, such as the private sector, to ensure the integration of economic, social and governance drivers. In this context, an emphasis on sustainable business, decent work and human rights provide a critical link between corporate responsibility and social inclusion. It provides the necessary framework to ensure coherence of national and international policies. Further, it can influence business practices regardless of where business takes place— in rural and remote communities of Australia, in developing and emerging economies, and in conflict zones with potentially weak regulatory environments. In short, a focus on sustainable business, decent work and human rights will deliver the most value to vulnerable workers and communities wherever they are located. Social inclusion, business and governance frameworks Globalisation has influenced the integration of capital, trade, information, intellectual property and labour across geographic and nation state borders. For the purposes of this paper, the focus will be on the labour market consequences of globalisation and their impact on governance frameworks to support sustainable business practices and social inclusion policy.


In this context, social inclusion is seen as a policy response that recognises that the best way to help disadvantaged communities and the poor is to increase their capacity to participate fully in the economic and social life of a nation. It emphasizes the importance of human capital development—building capacity to reduce inequality, improve access to employment, and sustained, long-term economic prosperity and participation (Lillywhite, 2008a). With this in mind, sustainable decent employment, and the protection of, and respect for, human rights by nation states and corporations is fundamental. Two instruments are highlighted for consideration. First and foremost, the ILO Declaration on Social Justice for a Fair Globalisation (ILO 2008a). The second being the framework developed by Professor John Ruggie, Special Representative to the Secretary-General, United Nations Human Rights Council (Ruggie,2008). ILO Declaration on Social Justice for a Fair Globalisation The ILO Declaration on Social Justice for a Fair Globalisation (The Declaration) is a significant new mechanism that contributes to policy coherence for sustainable development in national policies, among international organisations and in development cooperation. It brings together social, economic and environmental objectives (ILO 2008a). It highlights [The] importance of sustainable enterprises in creating greater employment and income opportunities for all (ILO 2008a, p.2) The Declaration’s tripartite basis ensures relevance and legitimacy. It promotes social dialogue as a foundation for consensus building. In the words of Director-General, Juan Somavia, [The Declaration] can forge an effective convergence of national and international policies that lead to fair globalisation and to greater access to decent work for women and men everywhere (ILO 2008a, p.4) In keeping with this paper’s theme of responsible business practice and social inclusion, The Declaration highlights the importance of an integrated approach, citing the impact of both trade and financial market policy on employment. This supports the ILO’s aim of ‘placing employment at the heart of economic policies’. Further, The Declaration supports the development of new partnerships with non-state entities and economic actors, such as multinational enterprises and trade unions. An integral aspect of The Declaration is the refinement of the concept of decent work through the Decent Work Agenda. The Decent Work Agenda has four equally important and interrelated objectives which can be summarised as follows:


The Decent Work Agenda • Promoting employment by creating a sustainable institutional and economic environment • Developing and enhancing measures of social protection—social security and labour protection—which are sustainable and adapted to national circumstances • Promoting social dialogue and tripartism • Respecting, promoting and realizing the fundamental principles and rights at work Sources: ILO 2008b, and Løken, E, Seip, A. & Dølvik, J 2008. Business and human rights: protect, respect and remedy The conceptual and policy framework proposed by Professor John Ruggie (Ruggie, 2008) makes a significant contribution to both the business and human rights agenda and that of social inclusion. Ruggie proposes a framework based on the principles of "Protect, Respect and Remedy": the state duty to protect against human rights abuses by third parties, including business; the corporate responsibility to respect human rights; and the need for more effective access to remedies. In presenting his report to the UN Human Rights Council in June 2008, Professor Ruggie indicated: The state duty to protect is critical because it lies at the very core of the international human rights regime; the corporate responsibility to respect because it is the basic expectation society has of business; and access to remedy because even the most concerted efforts cannot prevent all abuse (Ruggie 2008, p.3). The report identifies ‘governance gaps’ and a lack of coherence between multistakeholder initiatives, ‘public-private hybrids combining mandatory with voluntary measures’ (Ruggie 2008, p.27) and industry and corporate self-regulation as contributing to the challenge of developing a systemic response with broad applicability. Governance: back to basics A starting point for meeting the existing governance gaps is a framework that includes regulation, social incentives, social dialogue and access to remedy. In this context, the governance of globalisation, or lack of, which we are seeing played out in the current ‘financial crisis’ is clearly not due to globalisation as such, but to deficiencies in its governance. According to the World Commission on the Social Dimension of Globalization Global governance…is the apex of a web of governance that stretches from the local level upwards. The behaviour of nation States as global actors is the essential determinant of the quality of global governance…how they manage their internal affairs influences the extent to which people will benefit from globalisation and be protected


from its negative effects (World Commission on the Social Dimensions of Globalization 2004, p.11) Clearly national governance needs to be improved in all countries, more radically in some than in others. It is timely to go back to basics and revisit the internationally agreed essentials of a robust governance framework

The essentials of good governance • Good political governance based on a democratic political system, respect for human rights, the rule of law and social equity • An effective State that ensures high and stable economic growth, provides public goods and social protection, raises the capabilities of people through universal access to education and other social services, and promotes gender equity • A vibrant civil society, empowered by freedom of association and expression that reflects and voices the full diversity of views and interests. Organisations representing public interests, the poor and other disadvantaged groups are also essential for ensuring participatory and socially just governance • Strong representative organisations of workers and employers are essential for fruitful social dialogue Source: World Commission on the Social Dimensions of Globalization 2004 Re-regulation: collaboration, incentives and remedy when things go wrong In recent weeks there has been ‘much talk’ regarding the regulatory robustness of Australia’s financial sector. The current governance framework has, to some extent, shielded key financial institutions from the full effect of the ‘sub-prime’ and credit crisis. However, it would be unwise to assume our regulatory framework, particularly that ‘governing’ corporate practice is adequate, or indeed ‘fit’ for the challenges of sustainable development. The collapse of companies such as Pyramid, OneTel and HIH, and the business operations of others, such as James Hardie and the Australian Wheat Board, demonstrate that the fundamentals of good governance—transparency, accountability and independent monitoring—are often absent. Perhaps an even better example of the link between corporate responsibility and social inclusion concerns is the recent collapse of ABC Learning Centres, a private company providing childcare to 100,000 children around Australia (Hyam 2008). This governance failure has the potential to impact significantly on the workforce participation rates of these families if they are unable to access childcare in their communities. Further, the children using the centre may miss out on vital pre-school learning opportunities. Research by the Brotherhood of St Laurence into the garment sector in Australia (Diviney & Lillywhite 2007), confirms that regulation without adequate enforcement mechanisms, and incentives for compliance, will not protect vulnerable workers from


harsh employment practices and social exclusion. According to Marshall (forthcoming), while Australia’s regulatory framework to protect outworkers is overly complex, it in other respects appears to be a model of regulatory design because it provides a range of regulatory techniques, including incentives in the form of the ‘no sweat shop label’. It also has ‘teeth’, enabling unions and labour inspectorates to apply for sanctions in the event of non-compliance. Regardless of the rigour of the regulation, Marshall argues that countervailing forces and incentives to non-compliance must remain stronger than the incentives to compliance as there has been no apparent improvement in the conditions experienced by outworkers since new regulatory techniques have been made available. In 1996 the Senate Economic References Committee noted that non-compliance with award wages and conditions was so widespread it was considered normal, and this appears to be no less accurate today. Indeed, the BSL research found that conditions had worsened in the last five years despite strengthening regulation at both a state and federal level. Similarly, despite the Australian government’s support for voluntary mechanisms, such as the OECD Guidelines for Multinational Enterprises, without a functioning implementation mechanism there is no guarantee enterprises will uphold fair and decent employment practices and respect for human rights. The strengthening of regulatory frameworks is clearly necessary, and the social inclusion agenda fits well with recent comments by the ILO Director General. In order to keep open economies and open societies going, we must begin working together among relevant international organizations to develop a new multilateral framework for a fair and sustainable globalization. Trade talks are stalled; financial markets are on the brink, climate change continues; any reconstruction will have to find ways to integrate financial and economic, social and labour and environmental policies in a common sustainable development approach… moving quickly from recovery to sustainable development through investment and growth. (ILO 2008b) This demonstrates both the enormity of the task at hand, and the necessity to establish new partnerships and multi-stakeholder initiatives with non-state actors, including business and civil society. Social dialogue through formal agency networks will enhance systemic policy solutions to the challenges of sustainable business and a functioning social inclusion agenda. The development of ‘social incentives’ linked to core business operations is yet to be fully developed in Australia as a mechanism to mobilise common resources. On the one hand it can be argued that companies should not need any incentive ‘to do the right thing’, it’s what’s expected of them and embedded in their ‘licence to operate’.


On the other hand, incentives can foster sustainable business practice by linking the principles of CSR to core business drivers, rather than as an after thought. It can also result in companies striving to improve their corporate governance not only to meet legislative requirements, but because it has a positive impact on company performance. In this context, the fundamentals of economic, social and governance (ESG) research and criteria being developed for the responsible investment sector warrants consideration. Incentives for enterprises demonstrating responsible, inclusive business practice could include: • • • • •

access to government contracts for the delivery of goods and services; access to export development grants; access to export credit, finance and insurance; participation in major infrastructure projects; and participation in public private partnerships.

Effective grievance and remedy mechanisms are a fundamental aspect of the State duty to protect (Ruggie 2008). As evident in the garment sector in Australia, industrial regulation has little impact without mechanisms to investigate, adjudicate (judicial and non-judicial) and redress. There are growing societal expectations that the State will ‘referee’ poor business practice, and this should be reflected in the social inclusion agenda. Strengthening institutional and agency capacity in Australia The current financial crisis may provide an opportunity to put ideological divides aside and develop functional governance frameworks that promote sustainable business practice and an inclusive society. An alignment of government, business and civil society policy initiatives and practice could well result in uniform, binding regulation and deliver a more level playing field, predictability, and competitive advantage for those enterprises that demonstrate social responsibility. There are a number of initiatives that could be undertaken in Australia to not only strengthen institutional arrangements, but also encourage responsible business practice and social policy coherence. Predominately it will require a ‘joined up’ response and interdepartmental collaboration. Easy to say, difficult to achieve as many years of the ‘all –of –government’ rhetoric suggests. Some specific initiatives could include: • Establish a national corporate responsibility agency that reports to parliament. Representatives would be drawn from government, business and civil society. The terms of reference would be developed in response to multi-stakeholder consultation. The ILO Declaration on Social Justice for a Fair Globalisation along with the mandate


and report by Professor John Ruggie, would inform the work of both the Commission, and the government’s response to sustainable business, the decent work agenda and business and human rights. The agency would work effectively with the Social Inclusion Board. • Introduce mandatory corporate responsibility reporting for Australian transnational enterprises against sustainable business targets, based on the Global Reporting Initiative and linked to social inclusion targets and indicators. Annual reporting— under a ‘comply or explain’ system—would include progress towards decent sustainable employment, training, human rights, ethical, and environmental impact of their operations. This would include their operations in urban, rural and remote Australia and in developing and emerging economies. • Restructure the Australian National Contact Point (NCP) for the OECD Guidelines for Multinational Enterprises (Treasury) on a multi-partite structure, in line with recommendations by OECD Watch and their Model National Contact Point (Feeney 2007). • Establish a Corporate Responsibility Ombudsman. One function would be to act as a mechanism of appeal for cases rejected by the National Contact Point for the OECD Guidelines for Multinational Enterprises. • Establish a Public Private Partnership governance agency to develop a regulatory framework and incentive model to assist in the development of sustainable PPPs that promote sustainable business, uphold human rights principles and contribute to addressing place based disadvantage. • Ratify the international instruments that protect the rights of vulnerable workers, namely: 1. UN International Convention on the Protection of the Rights of all Migrant Workers and Members of their Families; 2. ILO Migration for Employment Convention 1949 (Revised) (No. 97); 3. ILO Migrant Workers (Supplementary Provisions) Convention 1975 (No. 143); and 4. ILO Convention on Homework 1996 (No C177). • Introduce government procurement policy legislation to mobilize the significant government capital available for the procurement of goods and services. This could be redirected to support local manufacturing, social and community enterprises and international ethical sourcing best practice in keeping with the Decent Work Agenda and responsible business practice.


These initiatives will go some way towards demonstrated recognition of sustainable, decent employment and human rights as fundamental to social inclusion policy, economic prosperity and wealth creation in the broadest context, and global policy coherence.

References Australia 2020 Summit 2008, Final Report viewed 14 November 2008. < http://www.australia2020.gov.au/final_report/index.cfm> Diviney, E. & Lillywhite, S 2007, Ethical Threads: Corporate Social Responsibility in the Australian Garment Industry, Brotherhood of St Laurence, Melbourne, viewed March 2008. Feeney, T 2007, Model National Contact Point, OECD Watch, Amsterdam Hyam, R 2008, ‘Business as usual' as ABC Learning goes into receivership, ABC News Online, 6th November, viewed 14th November 2008. ILO 2008a, ILO Declaration on Social Justice for a Fair Globalization, adopted 10 June, Geneva. ILO 2008b, Global financial crisis to increase unemployment by 20 million, Geneva, viewed 14 November 2008. ILO 2007, Toolkit for Mainstreaming Employment and Decent Work, Geneva, viewed 14th November 2008. Lillywhite, S 2008a, Social Inclusion and Corporate Responsibility for Business, key note address given at the Melbourne Cares Forum: Building Socially Inclusive Communities, Melbourne, April. Lillywhite, S 2008b, Seasonal Labour Mobility: responsible business conduct, decent work and regional engagement, Brotherhood of St Laurence, Fitzroy, viewed 11 November 2008.


Løken, E, Seip, A. & Dølvik, J 2008, Pathways to Decent Work in a Global Economy, Norway. Marshall, S (forthcoming), Australian Textile Clothing and Footwear Supply Chain Regulation’, in C. Fenwick and T. Novitz (eds), Legal Protection of Workers’ Human Rights: Regulatory Change and Challenge. Hart, Oxford, UK. Ruggie, J. 2008, Protect, Respect and Remedy: a Framework for Business and Human Rights. Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business entities. Human Rights Council, Eighth session Agenda item 3, Geneva. Viewed 14th November < http://www.reports-and-materials.org/Ruggie-report-7-Apr-2008.pdf> World Commission on the Social Dimensions of Globalization. (2004), A Fair Globalization: Creating opportunities for all. ILO, Geneva, Viewed 14 November 2008.
