Corporate Social Responsibility (IVOR nr. 77) 2010/6.11:6.11 The legitimacy of the regulation

Corporate Social Responsibility (IVOR nr. 77) 2010/6.11

6.11 The legitimacy of the regulation

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The criterion of legitimacy addresses the question whether a regulation is effective in the sense that the underlying goals, ideals and basic reasons for introduction of the regulation are accepted by the addressees (and others). Voluntary adoption could be used as an indicator of legitimacy. This description relates to the legitimacy of a regulation in the eyes of the regulated parties.

As regards the legitimacy of a regulator, we turn to Julia Black. For her, legitimacy means social credibility and acceptability: a generalised perception or assumption that the actions of an entity are desirable, proper, or appropriate within some socially constructed system of norms, values, beliefs, and defini-tions'.1 In a regulatory context, a statement that a regulator is legitimate means that it is perceived as having a right to govern both those it seeks to govern and those on whose behalf it purports to govern.2

In general, it has been observed that the principle of legitimacy of a private regulation relates to: openness, participation,3 transparency, accountability, effectiveness and democratic control.4 These elements resemble,more or less, the standard requirements of a democratic law development process. It can also be noted that most of these criteria focus on the process (of regulating) rather than on the product (the regulation).

One way to fulfill these criteria is to ensure the adequate involvement of stakeholders directly affected by a specific regulation. A difficult question is how to determine whether the norm creation process has indeed been inclusive: were all relevant parties included in the process? All parties include both the parties that will be affected because they have to adjust their conduct in order to comply with the new rules (eg employers in the Netherlands have to ensure a smoke-free environment for their employees), and the parties that have an interest in compliance with the newly introduced rules because they will benefit from the new standard (eg the non-smoking employees, their families and health-insurance companies). This concern also applies to the maintenance and enforcement of the norm. In addition, when establishing a new norm, sufficient safeguards should be built in to guarantee the independent and impartial adjudication or arbitration, which in turn will enhance the perception of legitimacy.

MSIs might contribute to the establishment of a dialogue leading to the emergence of internationally shared values, thereby contributing to the acceptance of private regulation thus developed.5 In other words, the involvement of stakeholders creates a sense of ownership' among the participants that can improve the level of their compliance with the private regulation. Attention should also be paid to the question whether some of the parties involved are more 'powerful'- politically or economically - than others in the rule-making process. When some players have the power to push for the inclusion of their interest at the expense of others, the latter will be less inclined to comply with the regulation. Another question relates to the credibility of the players: do they indeed represent the stakeholders whose interests they claim to promote? Another concrete way of assessing legitimacy is to identify initiatives that have been launched to improve the legitimacy of a particular regulatory process (eg are there any working groups in which stakeholders may be engaged?).

Private regulation can also pose pressing questions related to the principles of reasonableness and fairness. Developed countries in particular have so far dominated the development and standard-setting processes of private regulatory programmes. Therefore, some authors conclude that private regulatory programmes (e.g. certification) will have to successfully address equity questions if they hope to gain worldwide legitimacy'.6 Concerns have also been expressed by some scholars with regard to the failure of certain private regulatory regimes to respect deeply-held local or national values.7 When private regulation has binding force for its addressees, legitimacy concerns should be addressed all the more carefully.8

Another legal matter arises from the interplay between private and public actors: how should the phenomenon of formal legislation encompassing private regulation be qualified in terms of the legitimacy and/or legality of the rule-making?

This background, which is relevant in assessing the legitimacy aspect of a specific private regulation, can be applied to the three elected private regimes as follows:

1.

UN Global Compact Principles: the UN Global Compact Principles are addressed to companies ( those it seeks to govern'). The Global Compact initiative by Kofi Annan (the former Secretary-General of the UN) seems to incorporate relevant stakeholders by establishing local networks of corporate participants, NGOs and public officials ( those on behalf of whom it purports to govern'), which form an integral part of the overall governance. These networks assist in the management of, and facilitate the progress of, companies implementing the Principles.9 They also organise different events to foster corporate participation in these local networks and share mutual experiences. Another interesting aspect of these networks is the goal that the Global Compact take root in different national, cultural and language contexts. To a certain extent, this aim can also contribute to the acceptance of the Global Compact and, therefore, to its legitimacy. Significantly, civil society organisations (including NGOs), labour organisations, cities and academia are also said to be an integral part of the Global Compact.10 Finally, the Global Compact incorporates a transparency and accountability policy, the Communication on Progress;

2.

OECD MNE Guidelines: the OECD MNE Guidelines were drafted by the OECD, an international organisation including 30 Member States. Hence, the Guidelines do not benefit from the degree of legitimacy afforded by the UN to the Global Compact with its universally adhered-to set of rules. Besides the OECD Member States, 11 'Adhering States' have endorsed the OECD MNE Guidelines. The Guidelines apply to all companies from these 41 countries, wherever in the world they operate from. The institutional setup of the Guidelines consists of three groups representing different stakeholders: the OECD Investment Committee and the advisory committees of business and labour, the Business and Industry Advisory Committee (BIAC) and the Trade Union Advisory Committee (TUAC). Companies (i.e. the addressees of the Guidelines) played a role during the drafting process. The same is true for the developing countries where the investments take place (ie the beneficiaries of the Guidelines). For the OECD MNE Guidelines, a forum has also been set up through the national NCPs to encourage discussion and to assist the business community, labour organisations and other stakeholders with specific issues arising from its implementation.11 Nevertheless, one might question whether the participation of companies and other stakeholders, such as NGOs, is established to a sufficient degree, considering the predominant role of the OECD countries' governments in the establishment and maintenance of the OECD MNE Guidelines. A wider consultation would probably be welcomed. The Guidelines could benefit if their level of legitimacy increased, considering the aim of this initiative, ie to strengthen the basis of mutual confidence between multinational enterprises and the societies in which they operate, as well as to improve the climate for foreign investment and to enhance the contribution to sustainable development; and

3.

GRI Guidelines: the initial development of the GRI was characterised by a high degree of legitimacy because it involved a myriad of stakeholders such as investment funds, environmental bodies, companies, consultants and universities. Partnerships and alliances with different stakeholders today still form an integral part of the GRI's governance and decision-making process. It has been stressed that the GRI does this primarily not for moral, but for instrumental, reasons, most notably to enhance the quality of its results and to ensure that stakeholders are satisfied that they are influencing the standard'.12 It is worth mentioning that a study shows that the organisations more closely involved in the GRI's decision-making process are also the ones reporting more often and adhering more closely to the reporting framework. Moreover, the corporate sustainability reports based on the GRI Guidelines have recently been made publicly available directly through the GRI website, thereby increasing the transparency of this initiative.13 As mentioned in section 6.5, the GRI Guidelines' Application Level, which gives an opinion on the extent of use of the GRI Guidelines in a specific report, also aims to promote transparency, openness and accountability.

In sum, these examples illustrate different options for maintaining and enhancing the level of legitimacy of a private regulation. Addressing legitimacy concerns is certainly considered to be a serious objective by each of the three initiatives examined, such with a view of ensuring compliance of the addressees with the private norms.

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