#11_Managing labour standards? Reporting, auditing and certifying

How does management engage with upholding labour standards and workers’ rights? To a certain extent, this seems as a somewhat murky question: Isn’t it management and corporate interests which is causing all the troubles around labour standard violations in a short-sighted quest for economic gain and profit? And isn’t it the responsibility of states (pushed by unions, and civil society) to put restrictions on business management to ensure that workers’ rights are observed? Undeniably, these critical questions point into the right direction for identifying some of the longstanding systemic causes for many situations and cases of labour standard violations. The incentives for capitalist enterprises are directed towards lowering the costs of production and to increase profit. The latter sometimes even beyond any need in terms of productive efficiency, but rather in a motivation for redistributive value capture, coming along with severe forms of irresponsibility and exploitation.

While for some managers weakening workers’ rights appears to be the default business calculation, indeed, because it leaves workers in an even weaker market position lowering the price for work, others respond more positively to the societal expectations placed upon business to act more responsibly. Within a drive towards corporate social responsibility, many corporations put some effort in managing labour standards with corporate philanthropy, unilateral codes of conduct and the certification of management practices according to private standards. And although these activities are an answer to outside pressures on the world of business, i.e. political demands, societal expectations, and legal requirements, there are also drivers from the inside of business firms such as top managers’ humanist convictions, strategic reasons or the socio-technical requirements of the value creation process. For example, Weil has argued that upholding such standards exactly those standards are remaining as the glue of networked business processes controlled by the property rights managing platforms and brands orchestrating today’s value creation and value capturing networks (Weil, 2019).

It is fair to observe that, as far as corporate management’s contribution to the avoidance of labour standard violations is concerned, private regulation through reporting, auditing and certifying standards is key. Nevertheless, management of traditional capitalist corporations many times draws a fine line between technical and social standards, as well as separating between the standards for different groups of workers, and of course, between legal obligations and voluntary engagement in standard-setting. The resulting ambiguity is a trigger to the “whitewashing” accusations of what is to be conceived as being symbolic management only. However, there is also a deeper dilemma behind the dichotomy of public regulation and private governance often at the heart of debates about corporate social responsibility, corporate accountability and the social costs of private business (Vogel, 2010): Within capitalism, the private business sector is expected to be innovative, at times at the boundary to what is legally tolerated, sometimes even stretching beyond what is the acceptable standard; at the same, democratic citizens also expect to be treated as corporate citizens with inalienable rights when entering the workplace (Mückenberger, 2016; Edelman, 2016).

If managing labour standards is not just another wording for avoiding any responsibility by business firms, as the critics have it, this sort of private regulation takes on many forms and has produced since the late 1990s an overwhelming universe of various instruments: codes of conduct, management guidelines, social responsibility and sustainability reports, standard auditing and label accreditations in various areas of concern as well as with divergent procedural characteristics (for one overview see Colle, Henriques, & Sarasvathy, 2014). One way to bring some order in the myriad of standards is by using standards’ substantive domain which may be separated into socio-technical standards, rights-based standards and reporting standards.

Socio-technical standards are applied, for example, where businesses follow the standards of the International Organization for Standardization (ISO). Such standards exist in the areas of quality management (ISO 9001: 2015), environmental issues (ISO 14001: 2015) and health and safety (ISO 45001: 2021, currently replacing OHSAS 18001 and related to ILO-OSH 2001). To get accredited for applying these standards, management must check its management system in the respective area usually by demonstrating that certain processes are observed as well as certain responsibilities have been created in the organization. This is usually demonstrated in an auditing (for one example ILO_OSH 2001) supervised by a private accreditation agency (such as TUVSUD, for example) entitled to issue a certificate or label for standard compliance. These standards are useful for avoiding the violation of certain working and labour conditions in order to prevent deadly accidents, work-related illnesses or environmental damage (see for example Lim & Prakash, 2017). Recently, these standards have also extended to capture certain security and safety requirements of suppliers (SCC) and personnel services providers (SCP). The rationale for firms to participate voluntarily in these standardization processes is first and foremost, sending out a signal of a good reputation to other business partners, but sometimes also to demonstrate care in contract behaviour for legal matters.

If it comes to rights-based standards, no immediate process has developed so far that would match those in the world of socio-technical standards. Within the ISO domain the ISO26001 “standard” comes close, but works predominantly as a guideline for meeting societal expectations of corporate stakeholders in the strategic management process (Hahn, 2013). However, in the area of workers’rights, there is a widespread debate about accounting standards which should be fulfilled by large corporations in order to hold them accountable for their business conduct. These accounting standards require the disclosure of relevant data according to some transparency principles. For example, the Global Reporting Initiative (GRI) issues various standards for sustainability reporting based on the distinction between the social, economic and environmental pillars of sustainability. Respective standards concern how compliance with labour standards such as collective bargaining, social security (GRI400), but also the dealings with subcontracting units (GRI204) should be communicated and reported by firms. However, there are also other standard setting agencies like the social accountability standard (SA8000) that combine reporting and management standards on social rights, but are usually restricted in coverage of the applying firms.

Regardless of the fact that there is a widespread proliferation of various standards, and some observers already proclaim a networked meta-governance of corporate social responsibility, because these different standard setters have started to collaborate with each other around global initiatives such as the UN Sustainable Development Goals (SDGs) (e.g. Albareda & Waddock, 2018), standards are often criticized for their various procedural and substantive shortcomings. For very critical observers, the emergence of a (global) standards’ industry is to be interpreted as being the epitome of a huge political machinery for diverting attention away from private business corporate interest in rights’ violations and the avoidance of compliance through sophisticated power plays (Banerjee, 2018; Kaplan, 2014). And, while some interpret the sheer scope and number of these voluntary standard-setting approaches as transforming them into a reality of corporate accountability hard to ignore, for others, exactly the standards’ diversity may obscure their minor relevance and impact in practice.

A list of the weaknesses of private regulation and voluntary standard-setting could contain whitewashing, decoupling, lack of stakeholder involvement, neglect of stakeholder participation and ineffectiveness in practical implementation (“box ticking” instead of changing things in practice), obscure and intransparent auditing procedures, political influence on standard-setting, avoidance of legal regulation and public scrutiny and many more. Hence, the conclusion that private regulation cannot be a substitute or replacement for state-based, public regulation seems to be justified (Vogel, 2010). On the contrary, Brammer, Jackson & Matten (2012: 6) summarize the de facto “limited liability of the privately owned corporation has re-emerged as the collective liability of society”.

On the positive side, private regulation bears the potential to overcome a few of the obstacles which public governance and state intervention face, especially in regulating cross-border business activities within heterogeneous legal country settings (Scherer, Rasche, Palazzo, & Spicer, 2016). In such a view, private regulation includes those who are the subject of the standards’ limitations including to a certain extent also those voices demanding protection by opening up a space for dialogue with civic society groups. Involving management in standard-setting may likely increase the legitimacy of standards, also, because private standards can make use of management’s practical knowledge and private information for innovative solutions. Similarly, pitfalls in the details of implementation can be avoided not thought of by distant regulators or not disclosed to state agencies empowered with sanctioning power. Seen this way, also private standards may assist in developing processes that might shape responsible practice.

There is no need to recapitulate the whole debate here which surely also extends beyond labour standards violations to include a broader concern with the societal embeddedness of corporate politics. Obviously, like other approaches to support compliance with labour standards, voluntary standards suffer from the fact that their overall impact on reducing labour standard violations is difficult to identify on the ground. However, a couple of recent advancements in the social standards literature highlight an important conclusion about private regulation: Private standard-setting would gain in credibility if they took stakeholder involvement, in particular, workers and their representative organizations, much more serious than in the past. If left on its own, private business regulation brings about some corrosive phenomena from within which have been described as deceptive measurement, responsibility erosion and a blinkered culture (Colle, Henriques, & Sarasvathy, 2014). In other words, private standards once adopted cease to become enacted in management practice over time, or they may even have distorting effects. For that reason alone, outside control of the standardization process seems to be necessary. In a similar direction, Tulder, Wijk and Kolk (2008) have argued that the degree of organised stakeholder involvement is key in explaining to what extent companies show high or low compliance with health and safety standards. In their typology of CSR strategies, they distinguish those corporations seeing such a responsibility as a mere liability from those assuming a chain responsibility. However, the influence of stakeholders seems also to depend on the legal and ethical cultures in home and host countries.

This finding for including independent, but not neutral monitoring actors into standardization processes has also been supported by other studies. For example, in a more general critique of due diligence processes, Edelman (2016) has highlighted how the formal adherence to the letter of a certain standard, for example by having established an internal complaints’ committee, might be falsely taken as a signal of corporate compliance with a standard in legal court cases. In practice, these formally compliant companies might even turn this misjudgement into a threat to those organizational members who want to use due diligence procedures for settling their cases. In a similar vein, Fransen & LeBaron (2019) criticize large accounting and legal firms to support companies in their ambitions to water down reporting requirements and legal sanctions. This echoes the urgent question asked by Coffee (2006) on who controls the auditors and certifiers if they have incentives to collaborate with those organizations that they actually should certify (for getting an idea of how the auditors are watched see for example the GRI stakeholder council).

Exactly because labour standard violations are such a persistent social problem, these pitfalls and shortcoming of monitoring private standards are not trivial, especially if one wants to avoid symbolic evaluation and sophisticated window-dressing dominating changes in operational practices and the allocation of more resources into workplaces on the ground. Hence, the idea seems plausible that especially unions and other representative workers’ organizations could play such monitoring role in private regulation and standard-setting, for example through global framework agreements (Bourguignon, Garaudel, & Porcher, 2019) or supported by a stricter regulation of due diligence requirements.

References
Albareda, L. & Waddock, S. (2018). Networked CSR governance: A whole network approach to meta-governance. Business & Society, 57(4): 636-675.
Banerjee, S.B. (2018). Transnational power and translocal governance. The politics of corporate responsibility. human relations, 71(6): 796-821.
Bourguignon, R., Garaudel, P. & Porcher, S. (2019). Global framework agreements and trade unions as monitoring agents in transnational corporations. Journal of Business Ethics, 165: 517-533.
Brammer, S., Jackson, G. & Matten, D. (2012). Corporate Social Responsibility and institutional theory: new perspectives on private governance. Socio-Economic Review, 10: 3-28.
Coffee, J. C. (2006). Gatekeepers: The professions and corporate governance. Oxford University Press: Oxford.
Colle, S. de, Henriques, A. & Sarasvathy, S. (2014). The paradox of corporate social responsibility standards. Journal of Business Ethics, 125: 177-191.
Edelman, L.B. (2016). Working Law. Courts, corporations and symbolic civil rights. University of Chicago Press: Chicago and London.
Fransen, L. & LeBaron, G. (2019). Big audit firms as regulatory intermediaries in transnational labor governance. Regulation & Governance, 13: 260-279.
Hahn, R. (2013). ISO 26000 and the standardization of strategic management processes for sustainability and corporate social responsibility. Business Strategy and the Environment, 22: 442-455.
Helms, W.S., Oliver, C. & Webb, K. (2012). Antecedents of settlement on a new institutional practice: Negotiation oft he ISO 26000 Standard on social repsonibility. Academy of Management Journal, 55(5): 1120-1145.
Kaplan, R. (2014). Who has been regulating whom, business or society? The mid-20th-century institutionalization of ‘corporate responsibility’ in the USA. Socio-Economic Review, 13(1): 125-155.
Lim, S. & Prakash, A. (2017). From quality control to labor protection: ISO 9001 and workplace safety, 1993-2012. Global Policy, 8(Suppl.3): 66-77.
Mückenberger, U. (2016). Citizenship at work. A guiding principle for social and trade union policy. Transfer, 22(1): 25-44.
Scherer, A.G., Rasche, A., Palazzo, G. & Spicer, A. (2016). Managing for political social responsibility: New challenges and directions for PCSR 2.0. Journal of Management Studies, 53(3): 273-298.
Tulder, R.v., Wijk, J.v. & Kolk, A. (2008). From chain liability to chain responsibility. Journal of Business Ethics, 85: 399-412.
Vogel, D. (2010). The private regulation of global corporate conduct. Achievements and limitations. Business & Society, 49(1): 68-87.
Waddock, S. (2008). Building a new institutional infrastructure for corporate responsibility. Academy of Management Perspectives, 22 (3): 87-108.
Weil, D. (2019). Understanding the present and future of work in the fissured workplace context. Russell Sage Foundation Journal of the Social Sciences, 5(5): 147-165.

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