BP shows the need for a rethink of regulation
By David Scheffer
Published: May 27 2010 20:19 | Last updated: May 27 2010 20:19
One thing at least is certain after BP’s makeover of the Gulf of Mexico into a sludge pit: corporate self-regulation and public oversight have failed. We need to rethink how companies operate in a fragile world and how governments monitor them.
During the past 15 years a fresh perspective on the behaviour of multinationals has taken hold in multilateral organisations, in the European Commission and, at least rhetorically, in thousands of companies. “Corporate social responsibility” refers to a company’s duty beyond the technical requirements of national laws and regulations to comply with global principles of human rights, fair labour, environmental protection and corruption-free management. The United Nations Global Compact, which enshrines and promotes these principles, has garnered the “active” support of many companies worldwide including, for a while, BP but not its Gulf partners, Halliburton and Transocean, or its rival Chevron.
As a result, a new regime of self-regulation guided by voluntary principles has emerged with the blessing of the UN and many governments and trade bodies. But egregious assaults on civilian populations, the environment and workers’ rights continue, often with the assistance of corporate funding and contractual relationships that sanction others to ignore Global Compact principles. The pursuit of maximum profit seems destined to prevail.
BP is exhibit A. For years it has promoted its “green” credentials to the point of transforming its logo, advertising and website into celebrations of the environment. The public relations division trumpets the company’s commitment to human rights and fair labour standards. Like some other companies, BP issues annual sustainability reports attesting to its compliance efforts in these fields. But BP’s catastrophic gusher shows how corporate hype can peddle an illusion at the expense of the oceans.
President Barack Obama’s declaration that “we will trust, but we will verify” sounds reassuring. But for some time the assumption has been that companies would regulate themselves and be competently monitored for the public good. Nothing could be further from the truth.
Government officials doubtless were seduced by rhetorical embraces of CSR. While officials of the US Minerals Management Service were betraying the public’s trust in them, they could point to all that green publicity of BP and other petroleum giants and sit back.
So trust has died south-east of New Orleans. But BP’s gusher is only one example of a bigger problem. Litigation in federal and foreign courts continues to reveal corporate malfeasance against the human rights of indigenous peoples, labourers, vast stretches of the environment and anti-corruption rules. The archaic notion that companies should serve the public’s interest merits revival. We desperately need companies that pursue the common good, not only through contributions to free markets but also through CSR.
BP has broken the mould of self-regulation. With all companies now operating in its shadow, we need tougher enforcement of CSR. Manipulation of objectives by PR departments has to stop. Congress should mandate that multinationals incorporated or operating in the US should create professionally staffed divisions to uphold Global Compact principles and core duties set forth in more enlightened codes of conduct. In a move beyond feelgood ethics and anaemic committees, compliance divisions should report directly to chief management and the board of directors, and periodically file public sustainability reports to regulatory bureaux in Washington ramped up for rigorous oversight.
Compliance divisions should act with independent authority (like police departments’ internal affairs offices) to enforce CSR and compel planning for worst-case scenarios. Conventional risk assessment reports focus on what risks might impair investors’ confidence in a company. Future ones should also examine the catastrophic risks that would undermine society’s confidence.
The advantages of a vigorous free-market economy compete now with the risks that corporate behemoths pose to core societal values, not least the integrity of the ecosphere and our common survival. With trust dead and buried, it is now a case of “comply and verify”.
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