1.8.4 Private regulation - defining desired conduct

Mostly, in order to implement CSR, a company or a sector will start by defining CSR standards. It will draft a company code of conduct or adopt an internationally accepted code of conduct such as the OECD MNE Guidelines or the Global Compact Principles. Increasingly, we see that industries use a sector specific code of conduct.1 The purpose of a code of conduct is to make clear to all involved what standards and norms this company or sector has committed itself to. Communication flows first of all to the company's employees, customers, suppliers and shareholders, and in the second place to the community at large, which also includes stakeholders such as financiers, investors, public authorities, civil society organisations. A code of conduct also constitutes a useful measuringstick for a company's CSR performance'.

From another viewpoint, one could consider adopting a code of conduct to be the second step in the CSR implementation process. Deeper than the conduct itself is the level of the mission and ambition of a person. However, a business organisation is different from a person. A company for example, is a legal person' and as such has not a ' single conscience' like a human being.2 The fact that an organisation consists of many human beings in various temporary roles, such as founders, shareholders, directors or employees, allows it to escape from having one single conscience or mission. Moreover, companies are created and designed to do business, and most are intended to make a profit. From that perspective, it is interesting to note that certain companies have formulated a mission in a so-called ' mission statement'. Some thereby refer to the civil society document the Earth Charter.3 The mission or ambition constitutes the basis for standards of a more practical nature which can in turn be contained in a code of conduct.

A variation on adopting a code of conduct, or in addition thereto, is to obtain a defined sustainability certificate for the production process, or to only use products that have been awarded a certified sustainability label. A certification process is usually based on private regulation, and is often developed by MSIs. Examples of such labels are MSC (Marine Stewardship Council - sustainably caught fish) and FSC (Forest Stewardship Council - sustainably harvested timber). A Social Accounting 8000 or a Fair Wear Certificate can be obtained if a production process complies with, amongst other requirements, specific decent work standards.

Sector codes espoused by the financial sector, such as the Equator Principles, the Principles for Responsible Investment, the International Finance Corporation and World Bank standards, have an indirect but potentially strong influence on the behaviour of companies that wish to obtain external financing or are looking for institutional investors. Today, CSR standards, e.g. respecting human rights or performing an environmental assessment before commencing a project, are often included in loan agreements, and investors have formulated exclusion policies and engagement policies in respect of the companies in which they invest. As a new development, in the last decade, capital markets have seen the appearance of' sustainability indices'. MNCs increasingly aspire to belong to them. Some Dutch multinationals have linked bonus entitlements to the position the company occupies in the Dow Jones Sustainability Index.4

Mission statements, codes of conduct and sustainability labels can be used by any type of company, from a small or medium-sized company to a MNC. They have been qualified as private regulation' . It is interesting to assess the spectrum of CSR private regulation and the reasons behind the emergence thereof. Chapter 6 will define this concept and elaborate on it. It will also investigate the role of private regulation in contracts. It will become apparent that a number of large multinationals impose their code of conduct on their worldwide supplier network, in this way effectively establishing higher CSR standards on a worldwide scale.5 An interesting issue is the question of compliance. Why would a company comply with private regulation? It has often been asserted that codes of conduct concern voluntary standards and that they are not binding. What is the point then in adopting them and disseminating the content thereof around the world? In chapter 6, a theoretical model will be presented to test the probability of compliance with private regulation. The model encompasses four elements: the quality of the regulation, its legitimacy, the enforcement thereof and its effectiveness. The model is applied to three important private regulatory regimes: the OECD MNE Guidelines, the Global Compact Principles and the GRI Guidelines. The linkage between private regulation and public legislation is part of the examination.