Globalization: Observations on Federal Activities Related to	 
Global Corporate Social Responsibility and Human Rights 	 
(28-SEP-05, GAO-05-1049T).					 
                                                                 
The trend toward globalization has intensified the debate about  
the proper role of business and government in global "corporate  
social responsibility" (CSR), which involves business efforts to 
address the social and environmental concerns associated with	 
business operations. The growth in global trade and the dramatic 
increase in foreign direct investment in developing countries	 
raise questions regarding CSR-related issues such as labor,	 
environment, and human rights. U.S. firms with operations in many
countries employ millions of foreign workers and conduct a range 
of CSR activities to address these issues. However, there is	 
controversy as to the proper government role. GAO describes (1)  
federal agency policies and programs relating to global CSR and  
(2) different perspectives regarding the appropriate U.S.	 
government role in corporate global CSR efforts.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-1049T					        
    ACCNO:   A38564						        
  TITLE:     Globalization: Observations on Federal Activities Related
to Global Corporate Social Responsibility and Human Rights	 
     DATE:   09/28/2005 
  SUBJECT:   Accountability					 
	     Developing countries				 
	     Federal regulations				 
	     Globalization					 
	     International relations				 
	     Policy evaluation					 
	     Standards						 
	     Government and business				 
	     Government/business relations			 
	     Human rights					 

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GAO-05-1049T

United States Government Accountability Office

GAO Testimony

Before the Congressional Human Rights

Caucus

For Release on Delivery

Expected at 3:00 p.m. EDT GLOBALIZATION

Wednesday, September 28, 2005

     Observations on Federal Activities Related to Global Corporate Social
                        Responsibility and Human Rights

Statement of Loren Yager, Director International Affairs and Trade

GAO-05-1049T

[IMG]

September 28, 2005

GLOBALIZATION

Observations on Federal Activities Related to Global Corporate Social
Responsibility and Human Rights

                                 What GAO Found

Although the United States has no broad federal CSR mandate, we identified
12 U.S. agencies with over 50 programs, policies, and activities that
generally fall into four key government roles: endorsing, facilitating,
partnering, and mandating. However, many of these programs have small
budgets and staff and aim to accomplish broader agency mission goals,
rather than being specifically designed to facilitate or promote
companies' global CSR activities. The U.S. government endorses CSR by
providing awards to companies, such as the Department of State's Award for
Corporate Excellence. Federal programs facilitate CSR primarily by
providing information, funding, and incentives to key players to engage in
CSR. For example, the Department of Commerce facilitates CSR by training
its commercial service officers specifically on corporate stewardship. The
Department of State's efforts to convene nongovernmental organizations
(NGO) and oil and mining companies to ensure respect for human rights in
their overseas security procedures through the Voluntary Principles on
Security and Human Rights provide a partnering example. Finally, some
agencies, such as the Overseas Private Investment Corporation (OPIC),
mandate CSR by requiring companies to meet criteria consistent with CSR to
obtain agency services.

Perspectives on the government's role are tied to perspectives on CSR and
its connection to profit. Those with a free-market economic perspective
state that corporations should be primarily concerned with earning profits
and that government should not promote CSR because it reduces profit.
Those with a "business case" perspective contend that CSR efforts can
increase businesses' long-term profits and value, and welcome government
assistance with voluntary business efforts. Finally, those with a social
issues perspective believe that business should contribute to broader
social goals but have mixed opinions of whether this should be
accomplished through voluntary CSR actions or more extensive regulation.
Most representatives we spoke with at U.S. companies and other groups who
were actively engaged in CSR supported a government role in global CSR,
yet views on the appropriate role varied. Most supported U.S. federal
agency efforts to endorse and facilitate CSR and partner with companies
voluntarily pursuing CSR actions.

Examples of Federal CSR-Related Programs Addressing Human Rights and Labor
Standards

Agency Program/activity Objective

Commerce 	Training on human rights, rule To train commercial service
officers and foreign of law and corporate service nationals on rule of
law, human rights and stewardship corporate stewardship

          Labor      Protecting the Basic To improve the capacity of          
                                Rights of developing-country                  
                          Workers program   governments to achieve compliance 
                                                                with national 
                                               labor laws and internationally 
                                                           recognized workers 
                                                                       rights 
          State Partnership to Eliminate  To address unacceptable working     
                                          conditions in                       
                   Sweatshops Program       manufacturing facilities overseas 
                                                                 that produce 
                                                    goods for the U.S. market 

Source: GAO analysis of agency information.

United States Government Accountability Office

Mr. Chairman and Members of the Caucus:

Thank you for the opportunity to discuss our work on the federal
involvement in global corporate social responsibility and our recent
report on this topic.1 We appreciate the continued interest of Congress
and this caucus in these issues, and also recognize the leadership of the
Kenan Institute.2 The trend toward globalization-as evidenced by the
growth in global trade and the dramatic increase in foreign direct
investment in developing countries, from $22 billion in 1990 to $154
billion in 2002-has intensified the debate about the role of business and
the U.S. government in addressing "corporate social responsibility" (CSR)
related issues. The term "CSR" is often used to refer to business efforts
to address the impact of business operations on such concerns as human
rights, labor, and the environment. "Global CSR" is sometimes used to
refer to business efforts to address the social impacts of business in the
global economy. Discussions of global CSR in the context of developing
countries focus on the need for business to address the gaps from
inadequate or poorly enforced laws related to the protection of labor,
human rights, the environment, and other social resources.

Given the role of U.S. corporations in the growth of trade and investment
in developing nations and your interest in issues related to
globalization, this testimony describes (1) global corporate social
responsibility, (2) federal agency policies and programs related to global
CSR, and (3) different perspectives on the appropriate U.S. government
role in global CSR. While our original report covers the full range of
issues under the CSR umbrella, in this testimony we primarily focus our
examples on human rights and labor.

To determine what policies and programs federal agencies have adopted that
relate to global CSR, we surveyed federal legislation and spoke with
agency officials and experts in CSR. To identify different perspectives
regarding the role of the U.S. government related to corporate global CSR
efforts, we reviewed CSR-related trade and business literature and
interviewed representatives from U.S. multinational corporations, business
interest groups, investor groups, nongovernmental organizations

1GAO, Globalization: Numerous Federal Activities Complement U.S.
Business's Global Corporate Social Responsibility Efforts, GAO-05-744
(Washington, D.C.: Aug. 8, 2005).

2The Frank Hawkins Kenan Institute of Private Enterprise-Washington
Center, www.kenaninstitute.unc.edu.

Summary

(NGO), and academic institutions that are leaders in the CSR field. We
conducted our work from May 2004 through May 2005 in accordance with
generally accepted government auditing standards.

Global CSR is an umbrella concept that can best be described through the
definitions used for the term, the actions companies take to practice CSR,
and the roles of key players. CSR can be broadly defined as addressing the
interests of all company stakeholders, which include not only shareholders
but also customers, employees, suppliers, and the surrounding community,
on issues such as environmental protection, worker safety, and ethical
conduct. Global CSR addresses these issues within international markets,
particularly in developing countries. U.S. businesses take a variety of
actions related to CSR that range from voluntary, such as philanthropic
donations, to government mandated, such as disclosure of significant
environmental conditions. Civil society, investor groups, multilateral
organizations, and governments play key roles in identifying issues of
concern and in encouraging businesses to adopt CSR efforts to address
these issues.

Although the United States has no broad federal CSR mandate, we identified
12 U.S. agencies with over 50 programs, policies, and activities that
generally fall into four public sector roles: endorsing, facilitating,
partnering, and mandating. However, many of these programs have small
budgets and staff and aim to accomplish broader agency mission goals,
rather than being specifically designed to facilitate or promote
companies' global CSR activities. The U.S. government endorses CSR by
providing awards to companies, such as the Department of State's Award for
Corporate Excellence and discussing CSR publicly. Federal programs
facilitate CSR primarily by providing information or providing funding and
incentives to key players to engage in CSR. For example, the Department of
Commerce facilitates CSR by training its commercial service officers
specifically on corporate stewardship. To illustrate partnering, the
Department of State works with the United Kingdom to convene NGOs and oil
and mining companies to implement the Voluntary Principles on Security and
Human Rights to ensure respect for human rights in their security
procedures. Finally, in terms of mandating, some agencies, such as the
Overseas Private Investment Corporation (OPIC), mandate CSR by requiring
companies to meet criteria consistent with CSR to obtain agency services.

Perspectives of the government's proper role are tied to perspectives on
CSR and its connection to profit. Those with a free-market economic

perspective state that corporations should be primarily concerned with
earning profits and that government should not promote CSR because it
reduces profit. Those with a "business case" perspective contend that CSR
efforts can increase long-term profits and value and welcome government
assistance with voluntary CSR efforts. Finally, those with a social issues
perspective believe that business should contribute to broader social
goals, but have mixed opinions on whether this should be accomplished
through voluntary CSR actions or more extensive regulation. Most
representatives we spoke with at U.S. companies and other groups who were
actively engaged in CSR supported a government role in global CSR, yet
views varied regarding the appropriate federal role. In general, most were
supportive of U.S. federal agency efforts to endorse and facilitate CSR
and partner with companies voluntarily pursuing CSR actions.

                                   Background

The expansion of world trade and investment has led to the increasing
integration of the world economy in recent decades-a process often
referred to as "globalization." Total trade in developing countries,
exports and imports, rose from less than $1.5 trillion in 1990 to $3.8
trillion in 2002, while foreign direct investment in developing counties
grew even faster during this period, from $22 billion to $154 billion.
Some view globalization as fostering economic growth, increasing
employment, and improving living standards in both developed and
developing nations. Others claim globalization has negative social impacts
and raise concerns about the expanding activities of multinational
corporations, particularly in developing countries. U.S. multinational
corporations are now faced with difficult issues, such as the treatment
and conditions of foreign workers in corporate supply chains, human rights
issues associated with authoritarian governments in host countries, as
well as environmental and health issues associated with production in
diverse local communities. In addition, some negative incidents involving
U.S.-based companies have been widely publicized, hurting their own and
the United States' image, such as the use of sweatshops in the manufacture
of clothing and other products.

U.S. corporations are increasingly building operations or buying products
from sources in developing countries. However, the legal, regulatory and
ethical environments in which U.S. businesses and their suppliers operate
vary across countries. Given the limited capacity of some developing
countries, CSR advocates argue that corporations themselves must establish
and maintain codes of conduct regarding operating standards in these
environments. Companies face increasing pressure from nongovernmental
organizations, the media, "socially responsible" investor groups, and
other stakeholders to adhere to high standards globally in

their own operations and throughout their supply chains. For example,
recently U.S. electronics companies signed a joint code of conduct to
protect working conditions, workers' rights, and the environment in the
electronics industry supply chain. Despite these efforts, some CSR
advocates call for more government action to promote CSR, with some noting
that several national governments in Europe have put in place mechanisms
to encourage or require the adoption of CSR practices. In addition, some
Members of Congress have shown support for CSR-related policies, similar
to those advocated by working groups convened by the Kenan Institute.

Global Corporate Social Responsibility Embraces a Range of Human Rights
Concerns

Global CSR is an umbrella concept that can best be understood by
describing the different definitions used for the term, the actions
businesses take to practice CSR, and the roles of key players involved in
CSR. Although groups use different definitions and terms, CSR generally
involves business efforts to address a broad range of issues, including
labor and human rights. However, most definitions suggest that, in
addition to addressing the interests of its shareholders, business should
address the interests of its other stakeholders, including customers,
employees, suppliers, and the local community.

Business actions addressing CSR concerns related to human rights can be
broadly grouped into those addressing human rights, the workplace, and
community development:3

o  	Human rights: Business actions addressing human rights assure basic
standards of treatment to all people, regardless of nationality, gender,
race, economic status, or religion. Human rights policies generally guard
against such concerns as child labor in manufacturing, government action
depriving citizens of basic civil liberties, and forced or prison labor.

o  	Workplace: Business actions related to the workplace involve human
resource policies directly impacting employees, such as compensation and
benefits, career development, and health and wellness issues. Examples of
workplace CSR actions include adoption of global workplace standards,
involvement of employees in business decisions, and establishment of
employee grievance policies and procedures.

3Adapted from Business for Social Responsibility Education Fund, Corporate
Social Responsibility: A Guide to Better Business Practices (2000).

o

Although No Broad Federal CSR Mandate Exists, Federal Agencies Conduct
Activities Related to Global CSR

Community development: Business actions focused on community development
intend to benefit the business and the community economically,
particularly for low-income and underserved communities. Community
development activities include employing and training disadvantaged
workers, partnering with minority-and women-owned businesses, and locating
facilities in underserved communities.

The extent and type of business actions are influenced by key players in
CSR that include not only businesses, but also civil society, investor
groups, multilateral organizations, and governments. For example, the
Kennedy School of Government notes that the growth in civil society is one
of the drivers making CSR more mainstream. Civil society activities
exposing sweatshops or other questionable corporate activities can provide
an incentive for firms to act in ways that would avoid or mitigate damage
to their reputation. Investor groups such as mutual funds and pension
plans are responsible for a growing proportion of U.S. investments and,
therefore, are a potentially increasing influence over businesses' CSR
actions. Finally, multilateral organizations have played an active role in
developing standards relating to CSR and in promoting the concept of CSR.

To obtain information on specific agency programs and policies related to
CSR, we used a two-step process. First, we provided a general description
of global CSR to agency officials and asked them to identify relevant
programs, policies, and efforts within their agency. We then sent a
questionnaire to officials responsible for each identified program and
interviewed officials to obtain further information. We found that, while
there is no comprehensive legislation mandating a federal role in global
CSR, and few agencies actually define CSR, over 50 programs at 12 agencies
are related to global CSR. Many agencies work with the private sector on
issues that are generally covered by the concept "corporate social
responsibility," such as labor, human rights, the environment, and
corporate governance, but do not label their activities CSR.4

4For the full list of the federal CSR-related programs we identified by
agency, see appendix II of our report.

While Agency Perspectives on CSR Vary, Many Federal Programs in Pursuit of
Broader Mission Goals Are Related to Global CSR

Agency perspectives on global corporate social responsibility vary from
active endorsement to reluctance to label their programs CSR. For example,
several bureaus in the Department of State directly support corporate CSR
practices as a means to enhance their own efforts aimed at public
diplomacy, protecting human rights, and other areas. Similarly, the
Department of Commerce has officially endorsed corporate social
responsibility, stating that American companies must follow the highest
standards of conduct and contribute to the communities where they do
business.

However, other agencies do not want their programs to be labeled CSR
because they do not see it as part of their mission or believe they lack
authority to engage in CSR activities. For example, while officials from
the Office of the U.S. Trade Representative acknowledged that the agency
undertakes some activities that might complement CSR, they stated that the
agency's mission is to negotiate trade agreements, not to engage in CSR
efforts. Similarly, a senior official at the Department of Labor said
that, while the department has many activities that could conceivably be
seen as supporting global CSR, the department is not doing them for that
reason. He believes the department lacks specific authority to work on
CSR.

Some agencies without a formal position on CSR actively take advantage of
the overlap between their missions and company CSR practices to achieve
their broader mission goals. For example, the U.S. Agency for
International Development (USAID) and the Inter-American Foundation (IAF)
leverage resources from corporations for development missions.
Specifically, USAID's Global Development Alliance aims to achieve the
agency's development goals by leveraging resources from the private sector
and other partners. USAID's alliances address a range of issues, such as
encouraging economic growth, developing businesses and workforces,
addressing health and environmental problems, and expanding access to
education and technology.

Other agencies, such as OPIC, the Export-Import Bank of the United States
(Ex-Im Bank), and the U.S. Securities and Exchange Commission (SEC),
engage in activities related to CSR, generally in response to statutory or
congressional requirements rather than based on a formal agency decision
on CSR.

Many Federal CSR-Related Programs Are Recent and Have Small Budgets and
Staffs

Many of the programs we identified started in the last 5 years. For
example, the Department of State's Partnership to Eliminate Sweatshops
Program started in 2000 to provide grants to address unacceptable working
conditions in manufacturing facilities overseas that produce goods for the
U.S. market. In fiscal year 2003, the program funded the development of a
confidential database of factory-monitoring reports that would be
accessible by companies seeking compliance information on factories in
their supply chains. The effort was in response to U.S. companies that
have cited lack of information about factory compliance as an obstacle to
improving their own compliance efforts and responsible behavior. Since
2001, several presidential initiatives aimed at foreign assistance have
partnered with companies to achieve the initiative goals, which also
complement corporate CSR practices.

While some federal agency CSR-related activities address labor and human
rights issues directly, others cover a broader portfolio of issues that
sometimes include labor and human rights. The Department of Commerce's
training for commercial service officers on human rights, rule of law, and
corporate stewardship offers an example of a federal program with a
specific human rights focus. Commerce developed the training in response
to congressional concern that increased trade between the United States
and its trading partners might come at the expense of human rights. Table
1 provides additional examples of federal CSR-related programs
specifically focused on human rights and labor standards.

Table 1: Examples of Federal CSR-Related Programs Specifically Focused on
Human Rights and Labor Standards

Agency Program/activity Objective

Commerce Training on human rights, rule of law and To train commercial
service officers and foreign service nationals

  corporate stewardship on rule of law, human rights and corporate stewardship

Implementation of the Labor Standards To provide incentives to the
government of Cambodia to improve Provision of the Bilateral Textile
Agreement working conditions in the Cambodian textile and apparel industry
with Cambodiaa through effective enforcement of local labor laws and

internationally recognized core labor standards

                  Labor Protecting the Basic Rights of Workers

                                       b

                                    program

To improve the capacity of developing-country governments to achieve
compliance with national labor laws and internationally recognized workers
rights

International Child Labor Program-activities To support efforts to
eradicate exploitive child labor worldwide working with industry
associations

State Partnership to Eliminate Sweatshops Program	To address unacceptable
working conditions in manufacturing facilities overseas that produce goods
for the U.S. market

                       Agency Program/activity Objective

Voluntary Principles on Security and Human To provide guidance to
extractive companies on how to ensure

Rights 	respect for human rights in the creation and implementation of
security procedures

Source: GAO analysis of agency information.

aThe agreement with Cambodia expired on December 31, 2004.

bAn official from the Protecting the Basic Rights of Workers program,
which reported a $20 million budget in fiscal year 2003, said the program
received no funding from the fiscal year 2005 appropriations.

An example of a broad CSR-related program that may encompass human rights
and labor issues is USAID's Global Development Alliance-which supports
numerous public-private partnerships, of which some focus on these issues.
To illustrate, USAID partnered with one U.S. corporation operating in
postwar Angola to build up the country's business sector and equip
Angola's workforce with necessary business skills. The company and USAID
each agreed in 2002 to provide $10 million over 5 years for a series of
projects to strengthen small and medium-sized businesses, including
helping refugees and former soldiers to return to agriculture, developing
an enterprise development bank, and supporting the creation of an
agricultural training center. (Table 2 provides additional examples of
broad federal CSR-related programs that may encompass human rights and
labor standards).

Table 2: Examples of Broadly Focused Federal CSR-Related Programs That May
Encompass Human Rights

Agency Program Objective

State Secretary of State's Award for Corporate To promote best business
practices, good corporate governance, and

                                   Excellence

democratic values overseas

Organization for Economic Cooperation and To raise awareness among U.S.
companies of the OECD Guidelines Development (OECD) National Contact for
Multinational Enterprises and to facilitate resolution when parties Point
raise issues concerning U.S. companies' treatment of the guidelines.

 USAID Global Development Alliance To encourage public-private partnerships for
                              development projects

Source: GAO analysis of agency information.

Federal agency activities related to CSR focus on a range of countries and
sectors. For example, the International Child Labor Program at the
Department of Labor funds projects in Bangladesh, Pakistan, Central
America, and West Africa that work with various industry associations to
address the use of child labor. The Department of State funds a number of
projects in China and other countries in various sectors, including the
apparel industry and the extractives sector.

Many programs do not specifically track budget and staffing information
for their CSR-related activities. Of the programs reporting budget and
staffing information, most are relatively small. Similarly, many federal
CSR efforts are staffed by agency officials with multiple responsibilities
who work part time on the effort.

Federal Agencies Conduct a Range of Activities That Endorse, Facilitate,
Partner, and Mandate CSR Activities, Some Related to Human Rights

Most U.S. government programs, policies, and activities related to global
CSR can be loosely categorized into the World Bank's four public sector
roles: endorsing, facilitating, partnering, and mandating. These roles
range from the least government involvement (endorsing companies'
voluntary efforts) to the most government involvement (mandating behavior
consistent with CSR). Although some federal efforts related to CSR can be
classified as serving more than one role, roughly two-thirds of the U.S.
government programs, policies, and activities that we identified fell in
the middle of the spectrum by facilitating and/or partnering with
companies on their voluntary CSR efforts. The remainder either fell into
the mandating and endorsing roles or outside the World Bank's roles.
Figure 1 illustrates the range of U.S. government activities in the World
Bank framework.

Figure 1: Illustrative U.S. Government Activities Related to CSR Range
from Endorsing CSR to Mandating CSR

Source: GAO illustration based on World Bank report.

o  	Endorsing: The U.S. government has a number of awards programs that
endorse CSR by recognizing companies for socially responsible activities.
For example, the Department of State's annual Award for Corporate
Excellence emphasizes the role U.S. businesses play to advance good
corporate governance, best practices, and democratic values overseas.
Since 1999, 12 businesses have received the Award for Corporate
Excellence, following nominations submitted by chiefs of missions at U.S.
embassies and consulates abroad.

o  	Facilitating: The U.S. government facilitates CSR by providing
information, funding, or incentives to companies and other players to
engage in CSR-related issues. For example, the Department of Commerce
trains commercial service employees on rule of law, human rights, and
corporate stewardship. The training helps these officers provide
information on corporate stewardship issues to companies involved in the
export promotion process.

o  	Partnering: Several U.S. government programs partner with corporations
or convene partnerships with key stakeholders, which can help companies
accomplish their CSR initiatives. For example, the Department of State has
been a key player in convening stakeholders to develop the Voluntary
Principles on Security and Human Rights, which provides guidance to oil
and mining companies on how to ensure respect for human rights in their
security procedures. According to a State Department official, nearly
every major oil and mining company is now a participant in the Voluntary
Principles process.

o  	Mandating: While there is debate over whether complying with laws and
regulations constitutes CSR, a number of federal requirements and
regulatory mechanisms that mandate social and environmental issues could
fall under the CSR umbrella. For example, the Overseas Private Investment
Corporation (OPIC), which provides long-term financing and political risk
insurance to U.S. companies investing in over 150 emerging markets and
developing countries, requires that all beneficiary companies comply with
certain CSR criteria. These requirements cover issues that include host
country development impact, environmental protection, international labor
rights, and human rights. The requirements are written into contracts, and
OPIC specifies that they must be carried down to the subcontract level.

Strengthening Enforcement and Compliance with CSR-Related Regulations in
Other Countries

Perspectives on the Appropriate Government Role in CSR Vary, but Many  o 
Support Federal Assistance for Voluntary Efforts

In addition to the four roles discussed above, a number of U.S. programs
foster a business environment conducive to CSR by working with other
national governments to strengthen compliance and enforcement of social
and environmental regulations in countries where U.S. companies operate.
These efforts serve to protect U.S. businesses from competing with
companies that are not complying with weakly enforced laws and
regulations. For example, the Department of Labor's program Protecting the
Basic Rights of Workers works with host country ministries of labor to
improve adherence to international core labor standards and acceptable
conditions of work in developing countries. In accordance with a
congressional appropriation, in fiscal year 2003 the office allocated $20
million for these efforts worldwide, including in a number of countries in
Africa, the America, and Asia, and in Ukraine. However, according to an
agency official, this program's budget decreased to $2.5 million in fiscal
year 2004 and no funding was provided in fiscal year 2005.

Based on our review of CSR literature, perspectives on the appropriate
role of government in CSR vary, but generally correlate with three major
perspectives on the connection of CSR to business profits: (1) free-market
economic, (2) "business case," and (3) social issues.

Free-market economic perspective

Those with a free-market economic perspective generally view CSR as a
potentially profit-depleting activity that will ultimately diminish the
effectiveness of business and a free-market economy. According to this
perspective, business managers have a primary duty to maximize value for
shareholders, and in doing this, businesses serve the general welfare by
directing resources to produce goods and services society wants. In this
view, engaging in CSR actions that are not based on profitability can
affect not only business performance but also potentially reduce the
general welfare of society. While this free-market economic perspective
recognizes that government has a role in structuring the legal framework
of a market economy, those with this view do not support government
involvement in the general adoption of the concept of CSR.

o  Business-case perspective

Many CSR proponents cite a "business-case" perspective, in which business
CSR efforts are supported based on their contribution to business profit
and value. Those with the business-case perspective reason that businesses
can undertake CSR actions that will increase businesses'

value or return on investment in terms of increased revenue, increased
asset value, or reduced cost.

Engaging in CSR practices may also help multinational businesses manage
certain political and reputation risks in their operations, particularly
with regard to host countries in the developing world.5 Negative publicity
can seriously undermine the reputation of multinational businesses
internationally, and it can create a political climate that may lead a
host government to take actions, such as regulations or other
restrictions, that can undermine firms' efficiency and profitability. In
addition, some developing countries may not have adequate laws to address
concerns about workers rights or the local environment, and even where
they do, these countries may not have the resources, technical expertise,
or the willingness to adequately enforce their laws and regulations. By
demonstrating a commitment to good business practices, such as through
CSR, multinational businesses may send a signal that they are committed to
helping mitigate problems or issues that may arise regarding their
operations, thus creating a more positive climate in which to pursue
business opportunities.

Those with a business-case perspective view a major role of government as
supporting businesses' voluntary CSR-related efforts. Supporters of this
perspective look for business to work with civil society and government to
develop CSR approaches that address relevant social issues.

o  Social issues perspective

Those with a social issues perspective focus on the extent to which
business addresses social issues, but opinions within this group are mixed
on whether to rely on voluntary or mandatory CSR approaches. A 1999 survey
of 25,000 consumers worldwide found that two-thirds of the population in
countries surveyed indicated that "they want companies to go beyond their
historical role of making a profit, paying taxes, employing people and
obeying all laws; they want companies to contribute to broader societal
goals as well."6 Some supporters of the social issues perspective

5Virginia Haufler, A Public Role for the Private Sector: Industry
Self-Regulation in a Global Economy (Washington, D.C.: Carnegie Endowment
for International Peace, 2001).

6The Millennium Poll on Corporate Social Responsibility, conducted by
Environics International Ltd. in cooperation with the Prince of Wales
Business Leaders Forum and the Conference Board. Consumers in 23 countries
were surveyed.

cite successes of some business voluntary CSR efforts in contributing to
social issues. Some also call on business to voluntarily adopt CSR
practices to address social issues beyond what might be justified by
business profit. Such organizations see a role for government in fostering
voluntary corporate CSR actions.

Others with a social issues perspective believe that business is primarily
concerned with profit and thus should not be trusted to develop solutions
for important social issues on their own. According to those with this
view, business involvement in CSR efforts can become merely a branch of
public relations instead of addressing social problems.7 As a result, they
feel that governments should move to mandate CSR. Several groups have
argued for increased government engagement in CSR initiatives aimed at
ensuring that business adhere to international norms. For example, one
consumer group's position paper on CSR calls on governments and
international agencies to introduce legislation to set standards that
transnational corporations must observe and also a framework for
monitoring corporate behavior.8

Views of Groups Actively Engaged in CSR Vary on the Appropriate Role of
the U.S. Government in Global CSR

In addition to reviewing the available literature, we also interviewed 32
individuals actively engaged in CSR representing companies; business
groups; NGOs focused on environmental, human rights, and labor issues;
investor groups; and academic institutions to obtain their views on the
appropriate role for the federal government and the impact of current
federal activities on their CSR efforts.9

A majority of respondents supported a government role in global CSR, yet
views varied regarding the appropriate federal role and the impact of
current activities. Some respondents based their discussion of the
government role on their knowledge of current U.S. government activities
related to global CSR, yet we found that several were unaware of these
efforts. While some said they were aware of U.S. government efforts, they
primarily cited domestic CSR efforts or initiatives that are not led by
the U.S. government.

7Christian Aid, Behind the Mask: The Real Face of Corporate Social
Responsibility, 2.

8Consumers International and Corporate Social Responsibility, Consumers
International.

9Our selection was not intended to be representative in any statistical
sense. For more information, see appendix I of our report.

Mixed Reactions Regarding the Impact of U.S. Government Efforts to Endorse
CSR through Awards

Respondents Supported Government Efforts to Facilitate CSR and Partner

Mixed Views on Government Mandating CSR through Laws and Regulations

A number of respondents were aware of U.S. government award programs that
endorse CSR, but had mixed reactions regarding their effectiveness.
Whereas a majority of companies we interviewed who commented on awards
said they have a positive impact, for example, by motivating employees and
validating the company's efforts, some companies were not motivated by
awards. Most of the business groups reacted positively to federal
government awards, stating that awards call attention to success stories
and provide a signal of the type of behavior the government likes, help to
motivate companies, and provide a positive counterbalance to regulations
and compliance by rewarding voluntary efforts. Most of the NGOs that were
aware of federal government awards for global CSR activities were
skeptical of the impact of the awards, questioning the nominations and
selection processes and whether the awards are a good indicator of
companies' CSR performance.

Many respondents from the various groups expressed support for federal
government efforts to facilitate CSR, especially through providing
information. Representatives from companies and other groups suggested
that the government could play a more active role in providing information
on how to set benchmarks in areas such as the environment and human
rights, providing information on best practices and how to start CSR
activities in other countries, or establishing a clearinghouse with
CSRrelated information.

Many respondents viewed government partnerships with companies and efforts
to convene stakeholders to accomplish CSR goals favorably and thought it
was an appropriate role for the U.S. government. Many organizations
supported a federal role in partnering by convening stakeholders to
address specific CSR issues or to share information. For example, the
Department of State's involvement in developing the Voluntary Principles
on Security and Human Rights was cited as an example of a positive effort
by the U.S. government to convene stakeholders to address a CSR-related
issue.

Companies and business groups generally held mixed views regarding the
impact of laws and regulations on company global CSR efforts, whereas NGOs
and investor groups largely believed that laws have a positive impact on
CSR. In general, these latter groups desired a government role in
mandating CSR, especially to increase disclosure and transparency of
company CSR activities. A few respondents cited the lack of U.S.
legislation or involvement in CSR as an impediment to companies' CSR
efforts.

Some Respondents Want More Coordination among U.S. CSR Activities and
Greater U.S. Role in CSR Global Leadership

While some companies were concerned about burdensome mandates, several
said that certain existing regulations and government efforts create
minimum standards and level the playing field internationally, which is
helpful to companies with active CSR programs. According to one company,
laws such as the Foreign Corrupt Practices Act has had a positive impact
on the company's CSR activities by enhancing the visibility of CSR and
helping to raise standards of transparency and governance. Similarly,
customs legislation that set minimum criteria allows the company to
discuss CSR standards with its suppliers and ensures that it is not the
only company focusing on these issues, which could create a competitive
disadvantage.

Many respondents agreed that government should play a role in promoting
transparency and disclosure of companies' CSR efforts. Some companies
strongly supported a federal role in promoting transparency, yet others
warned against regulation and adverse consequences, for example, if U.S.
companies face regulatory burdens and are forced to disclose more than
their foreign competitors. However, some NGOs and investor groups
supported government mandating that companies disclose information on
CSR-related issues.

A majority of respondents from the various groups supported a government
role in encouraging other governments to enforce their own laws and
standards related to common CSR issues. A few suggested that trade
agreements offer an opportunity to encourage other governments to enforce
CSR standards.

Some respondents expressed a desire for more coordination among U.S.
activities related to global CSR and pointed out that other countries are
more involved in CSR than the U.S. government. Some noted that federal
efforts are not well coordinated, which can make it difficult for
companies to participate in U.S. government activities, and called for
increased coordination among U.S. government agencies for CSR activities.
Several respondents also expressed a desire for a greater U.S. government
role in CSR, stating that the United States is absent from world
leadership, especially compared with the European Union, on this issue.
One company wanted the U.S. government to participate in the global debate
on CSR and to continue its efforts to represent U.S. interests in the face
of the European Union's more regulatory approach to CSR.

Concluding Observations

In my opening remarks, I cited a few of the reasons why firms' efforts in
the areas of global corporate social responsibility and human rights have
a potentially significant impact in other countries around the world.
Globalization has taken many forms, but certainly the operation of U.S.
firms in other nations is an important element of this trend and, for that
reason, has a potentially significant role in issues such as human rights.
We appreciate the opportunity to provide additional transparency to the
policy debate about the U.S. government role by detailing the efforts
across many departments that may affect the private sector's CSR efforts
related to human rights and labor issues.

This hearing is also timely in that the two recent hurricanes in the Gulf
of Mexico have demonstrated that, even in the United States, the private
sector can play a crucial role in responding to disasters. Globally, U.S.
companies have provided nearly $562 million to relief efforts in the wake
of the tsunami that hit Asia and Africa in December 2004.10 While
philanthropic activities, such as responding to disasters, is only one
element of CSR, these disasters lead to increased attention and insight
into the important roles of the government and the private sector in
addressing both the immediate and longer term needs of persons around the
world.

Mr. Chairman, this concludes my prepared statement. I would be pleased to
respond to any questions that you or other Members of the Caucus may have.

For questions about this testimony, please contact me at (202) 512-4347 or
[email protected]. Other major contributors to this testimony were Kate
Blumenreich, Ken Bombara, Tim Fairbanks, Kim Frankena, and Jamie McDonald.

                                GAO Contact and

Staff Acknowledgments

10As of June 8, 2005, according to the U.S. Chamber of Commerce Web site,
www.uschamber.com.

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