Who Really Benefits from Voluntary Corporate Codes of Conduct?

Submitted by Anne Landman on July 2, 2008 - 4:55pm

Pinnochio A recent investigation by BBC Television showed British American Tobacco (BAT) violating its own voluntary marketing and advertising codes in Malawi, Mauritius and Nigeria. Contrary to BAT's public pronouncements that it doesn't want children to smoke, the company was caught using marketing tactics in these countries that are known to appeal to young people, like advertising and selling single cigarettes, and sponsoring non-age-restricted, product branded musical entertainment.

As trading has become more global and corporations have become more multinational, countries started discovering that they have little recourse to rein in the harmful behavior of corporations. As public clamor to regulate multinationals has grown, companies have increasingly responded by adopting "voluntary codes of conduct." But what are the real purposes for these codes? Are they just window dressing, or worse?

Purposes of Voluntary Codes of Conduct

The BAT incident demonstrates how deceptive, and even fraudulent, self-imposed corporate "voluntary codes" of conduct can be. Corporations, and even entire industries, publicly claim that they adopt such codes out of caring and concern for the health and welfare of people and the environment. In reality, these codes confer far greater benefits upon the companies than they do upon the public. Corporations use these codes as a crisis management strategy to stave off government regulation, improve their image, boost their credibility with legislators and regulators, and thus preserve their seat at the table in any regulatory discussions. Voluntary codes also give political cover to legislators who favor industry by giving the legislators something they can point to to calm public demands to rein in harmful corporate behavior.

Tobacco Industry Documents Explain the Real Purpose of Voluntary Codes

An undated, eight-page strategy document from BAT states BAT's intent to enact a voluntary code of conduct to "demonstrate responsibility" to policymakers and "enable government to claim that they 'have done something' to address a negative corporate behavior ... which is what they need in answer to pressure groups."

A 1991 Philip Morris Corporate Affairs Europe (PM) document proposes enacting a voluntary code of conduct to avoid regulation, stating, "A first step [to fighting proposed advertising restrictions in Poland] was a meeting between PM management and the [Polish] Minister of Agriculture, after which the latter became an active supporter of a voluntary code of conduct as a viable alternative to stringent restrictions ... "

Many tobacco industry documents indicate the real intent behind such codes. Voluntary codes have been highly effective at keeping tobacco companies from being marginalized in the world of commerce. The more mainstream these companies are, the more influence they will maintain over government efforts to regulate them.

Additional Problems With Voluntary Codes

Voluntary codes pose additional burdens on society in many other ways. Carry

Typically, voluntary codes are enforced only through complaints; there is no proactive enforcement. Companies can get away with violating their own codes until the misbehavior is discovered and reported by someone outside the company. Thus public must take on the burden of observing and evaluating corporate behavior, and reporting violations to the company's headquarters. Few members of the public are familiar enough with the codes to pull this off, and most people don't have the time to police corporate behavior while also working to feed their families or just surviving, especially in third world countries. Also, information about complaints made to the company is not transparent; companies need not publicly reveal any data about the number of complaints it receives, the locations, products involved or other information. fines are attached to breaches, they are rarely commensurate with the profits derived from the breaches. Another feature of voluntary codes is that those investigating complaints rarely have the power to discover documents as would be the case if a public regulator were launching legal proceedings.

Moreover, corporate codes address only the issues the company wants to address. Typically these codes focus only on specific issues companies regard as potentially highly damaging, so only those issues with a high profile are likely to be addressed by conduct codes. They also allow companies to ignore larger, more complicated problems or problems caused by entities "downstream" from the company, like suppliers and distributors.

Voluntary Code Strategy Has Spread to Other Industries

The tobacco industry's success in the strategic application of voluntary codes to their advantage has demonstrated the value of the strategy to the larger corporate world. As a result, other industries are rushing to adopt such codes: the beer industry, the hard liquor industry (which, until the 1990s had a voluntary code in place not to advertise on television), the pharmaceutical industry, the cellular phone industry, and the gambling industry, to name a few.

Conclusion

Voluntary codes tend to benefit corporations, not people. The public is right to be skeptical of voluntary corporate codes. Tobacco documents give historical insight into the real reasons companies devised such codes and why they continue to implement them. The more harmful the product and the greater the wrongdoing by an industry, the greater the public clamor for regulation and the greater the proliferation of voluntary codes of conduct. These codes are typically little more than a component of a larger strategic public relations program designed to delay effective government intervention. The public would be well served to understand the strategic applications of these codes, and keep the pressure on for effective government intervention when corporate behavior clearly merits it.