Stakeholder capitalism finally makes it into law. And the NGOs' flawed accountability charter shows they don't practice what they preachby P L / July 22, 2006 / Leave a comment
A high-stake reform
A decade ago, a fresh-faced Tony Blair briefly touted “stakeholder capitalism” as New Labour’s big economic idea. But he soon recoiled: the notion, made fashionable by Will Hutton’s The State We’re In, that companies should be accountable not just to the short-term demands of their shareholders but also to the long-term interests of their wider stakeholders, such as their employees, was dismissed as dangerously radical. Yet in the dying days of the Blair era, the government is quietly pushing through parliament a bill to reform company law that could have dramatic consequences for British businesses. The bill will for the first time put company directors’ duties into statute. They will be required to ensure that the business is run in the financial interests of its shareholders, but also to “have regard to” its impact on employees, customers, suppliers, communities and the environment. The bill will also make it easier for shareholders to sue directors for failing in their statutory duties.
Predictably, the coalition of unions and NGOs campaigning for greater corporate social responsibility complain that the reforms do not go far enough—they would rather directors had a “duty of care” to communities and the environment. But even in its current form, the bill is a big victory for them. It would, for instance, allow NGOs to sue directors for failing to give due regard to their company’s environmental impact. Friends of the Earth (FoE) could buy a few Tesco shares and then sue the directors of the supermarket chain for, say, failing to do enough to encourage recycling, squeezing its suppliers too hard or sourcing fruit from developing countries where environmental rules do not live up to FoE’s expectations. The mere threat of legal action would have directors scrambling to cover themselves.
That is bad for business—and a shoddy way of advancing green goals. Soundly based, transparent and predictable environmental regulation is surely preferable to expecting company directors to second-guess what courts might deem appropriate.
A flawed charter
NGOs have long demanded that governments, businesses and international organisations be transparent and accountable for their actions—and rightly so—but what about NGOs themselves? The self-appointed guardians of global rectitude ask us to rely on their word that they are beyond reproach. But in a belated response to closer scrutiny, this is finally starting to change: 11 leading international NGOs have just signed up to a new “accountability charter.”
The new charter’s signatories make much of their commitment to accountability and transparency, as well as to principles such as good governance, independence and ethical fundraising. But they still ask us to take too much on trust. For instance, saying “we are accountable to our stakeholders”—including future generations and ecosystems—sounds great, but how? Declaring that: “We will listen to stakeholders’ suggestions on how we can improve our work and will encourage inputs by people whose interests may be directly affected” is scarcely robust accountability.
Nor does the charter do enough to guarantee NGOs’ independence. It does not, for instance, force directors to reveal their political and business links. Its ethical fundraising pledge commits NGOs to reveal their donors’ names only “in cases where the size of their donation is such that it might be relevant to our independence,” which is worryingly vague.
Above all, there are no guarantees that this voluntary charter will actually be enforced. Pledging to apply it “progressively” and promising to produce an annual report are not enough; NGOs must also agree to independent monitoring. In short, the charter falls far short of what is needed.
A plague of populism
To show off their intellectual superiority, certain very clever people love arguing outrageously contrarian things. Joseph Stiglitz is a classic example. No matter how misguided the anti-globalisation brigade’s positions may be, the former chief economist of the World Bank makes a habit of defending them. In the latest edition of New Perspectives Quarterly, Stiglitz goes out of his way to deflect criticism of the new breed of Latin American populists such as Venezuela’s Hugo Chávez: “Now, if by populism one means worrying about how the bottom two thirds of the population fares, then populism is not a bad thing,” the Nobel laureate argues—even though the distinguishing feature of Chávez’s populism is clearly not his apparent concern for the poor, which is more than matched by Brazil’s Lula, but his penchant for quick-fix remedies and anti-American grandstanding.
“Obviously, it is of concern if these new leaders of the left in Latin America pretend there are no laws of economics,” Stiglitz astutely adds. “But the question is whether the IMF strictures are the only ones consistent with good economics,” he continues, changing the subject and setting up a straw man—”The answer to that is a resounding no.” But the real issue—whether Chávez’s profligacy is bringing a lasting improvement to poor people’s lives or whether Venezuela’s oil windfall is being squandered—has been dodged. Stiglitz is no stranger to populism himself.