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Who’s responsibility is it, anyway?

By Erin Leitheiser.

Workers and companies from across the globe each play a part in creating our clothes.  Yet, it’s unclear who is responsible for addressing the myriad of social and environmental sustainability issues in these global supply chains. 

Who is responsible for the social and environmental sustainability of the denims that you’re wearing? 

Chances are that when you check the tag you’ll see the name of a country like Bangladesh, China or Turkey.  While global sourcing from these and other textile hubs has been common practice for decades, we still face major issues related to child labor, poor and unsafe working conditions, modern slavery, gender inequality, pollution, and many more.  Partnerships and collaborations have sprung up across the board to address supply chain issues, with just a few examples including an initiative to remedy the safety of ready-made garment (RMG) factories in Bangladesh, attempts to raise the standards and traceability of extractive industries, and Ethical Trading Initiative’s recent launch of a platform for ethical trade in Turkey. 

While partnership and collaboration form the foundation of many of these efforts, there remains great confusion about who is and should be responsible for what in supply chains.  Looking specifically at ready-made apparel (RMG) supply chains, here’s a glimpse into some of the murky roles and responsibilities. 

  • Consumers.  Consumers are held up as king in the world of retail, and may indeed have great (collective) power through purchasing behavior.  Yet, it is difficult if not impossible for consumers to make informed choices about how and where a product was made.  (Side note: a relatively new NGO has been established to create a consumer-facing scoring system to help combat this issue.)  And, even ethically-minded consumers are rarely willing to sacrifice style or price for sustainability.  Therefore, consumers often point to the brands and retailers who put product on the shelves as responsible for ensuring the social and environmental sustainability of all of their offerings. 
  • Brands and Retailers.  The giants of the RMG world, brands and retailers demand high volumes, quick turn-around times, and low prices in their industry of fast fashion.  Even large brands and retailers don’t own many – if any – of their own factories, so instead, opt to purchase goods from a vast network of third-party suppliers.  While virtually all buying companies have codes of conduct governing things like child labor and basic safety practices, any one company’s orders may only constitute a small fraction of a factory’s production, making leverage with the supplier to make changes and upgrades difficult at best.  This may be even more problematic for small brands and retailers whom may depend upon agents (the industry’s equivalent of your friend who “knows a guy”) to find and contract with suppliers. 
  • Suppliers (Factories).  Suppliers simultaneously face downward price pressure and increasing compliance requirements.  First, suppliers must be able to produce a quality product within a short period of time for the right (low) price.  Then, they must comply with each and every buyer’s code of conduct, some of which include additional third party certification (e.g. Oeko-Tex certification on harmful chemicals and substances, a virtual requirement for any producer of maternity or children’s wear).  At the same time they often need to rely upon sub-suppliers to complete orders on time since particularly small factories (under 300 workers) employ enough people to be able to quickly deliver orders for 5,000, 10,000 or more pieces, which adds an additional layer of complexity and transparency. Suppliers often resist worker unionization or other process improvements beyond what is demanded by buyers, in part fearing soaring costs that will make them uncompetitive in the marketplace. 
  • Local Governments.  Governments in supplying countries are responsible for setting and enforcing the laws governing the industry.  While most countries with significant production levels have reasonable laws in place regarding human rights, child labor, and environmental impact, those countries also often suffer from a great lack of enforcement of said laws for a myriad of reasons: lack of financial resources, insufficient staffing levels, inadequate processes and capabilities, and bribery and corruption, to name a few. 
  • UN and ILO.  The UN Guiding Principles on Business and Human Rights and ILO’s Decent Work agenda provide standards and a framework from which businesses can formulate and evaluate their human rights and labor policies.  While crucially important tools, neither have the purview or power to compel uptake or compliance. 

This brief overview of just the major players in global textile supply chains shows how blurred the responsibilities are for social and environmental sustainability.  No one person or party is responsible for or can solve the challenges we face.  But, if we can all be open to change and accept that we each bear some responsibility for solving the issues, we have a fighting chance to make systemic and meaningful change in the industry.  Indeed, in the words of Andrew Carnegie, “do your duty and a little more and the future will take care of itself.”

Erin Leitheiser is a PhD Fellow in Corporate Social Responsibility and Sustainability at Copenhagen Business School.  Her research interests revolve around the changing role and expectations of business in society.  Prior to pursuing her PhD she worked as a CSR manager in a U.S. Fortune-50 company, as well as a public policy consultant with a focus on convening and facilitating of multi-stakeholder initiatives.  She is supported by the Velux Foundation and is on Twitter @erinleit.

Pic by Unicef, found on Flickr

Accountability, Communication, Concepts, CSR, Featured, Issues, News, Technology

Big Data: Make Every Voice Count

By Michael Etter.

How do we determine if an organization behaves in a socially acceptable way? This question is highly relevant and not easy to answer. If we want to hold organizations accountable for their actions, we need to know what the norms are, against which we measure organizational behaviour. But how do we define these norms? And how do we make sure to include a variety of experiences, opinions, expectations, and values, when judging organizational behaviour? In a recently published article, my colleagues and I argue that social media and big data analytics might provide us with a possible answer to these questions.

When assessing the social acceptance of organizations, researchers typically consult one of three sources that make judgments about organizations visible: News media, accreditation bodies, and survey-based rankings. While well established in the academic literature, these sources are limited in their ability to account for the heterogeneity of norms and values of post-modern societies. In the following I will explain why.

Institutional evaluators represent homogenous norms and particular agendas

There is a general agreement that news media influence and reflect the public perception of acceptable corporate behaviour. As institutional evaluators news media are crucial for the identification and evaluation of organizational conduct and – even more so – misconduct. News media can therefore be seen as a public forum, where socially acceptable behaviour is constantly negotiated and defined. However, we have to remind ourselves that only a few privileged actors can actively participate and shape this forum. In fact, the possibilities for most citizens to express their experiences, views, and opinions in news media are limited.

Furthermore, news media only report certain events about certain organizations, while leaving others untouched. Indeed, the complex process of news production is determined by several selection processes, editorial routines, professional norms, and institutional constrains that substantially influence the expression and negotiation of judgments about organizations. For these reasons news media give only limited indication for the heterogeneity of experiences, opinions, values, and norms of wider parts of society.Accreditation bodies are a second source that gives indication, if organizations behave in a socially acceptable way. Accreditation bodies define the norms and standards, according to which organizations should conduct their business. If corporations fail to meet these standards, they are visibly downgraded, delisted, or otherwise sanctioned.

The judgments of organizational behaviour by accreditation bodies are typically based on balanced evaluation criteria that are established by experts. From a critical point of view, however, it can be argued that these judgments only partly represent the views of a wide array of civil society actors. In fact, even if standards include the inputs from certain stakeholder groups, these groups will represent merely their own agendas. As a result, again, accreditation bodies give only limited indication for the multifaceted expectations, opinions, views, and experiences of ordinary citizens.

Finally, researchers have used survey based measures to assess the public perception of corporate behaviour. Surveys can provide a representative picture about the opinions of certain societal groups. Nevertheless, surveys face several methodological challenges, such as social desirability bias or lacking knowledge about certain organizations. Furthermore, predefined evaluation criteria run the risk to miss or overemphasise certain aspects of organizational behaviour. This means, again, that survey based measures give only limited indication for the expectations, opinions, views, and experiences of ordinary citizens.

The value(s) of digital finger-pointing

Now, can social media provide a solution for these shortcomings? We believe that social media can at least complement the picture. In our article, we discuss how social media can give a more direct and inclusive access to a plurality of voices and opinions of ordinary citizens. This is the case, because social media are increasingly used by a variety of civil society actors to express their views, interpretations, and experiences.

Obviously, the expression and negotiation of judgments in social media are subject to various selection biases and power dynamics. Recent attention has been paid to “echo chambers”, where the plurality and negotiation of opinions are distorted, because everybody seems to have the same opinion and talking about the same topic. These filter bubbles form, because individuals tend to connect and surround themselves with individuals who have similar views. Technological filters and algorithms have further magnified the effects of these filter bubbles. Other biases are related to varying use of social media, self-censorship, and the tendency to promote a desirable self-image, which leads to selective behaviour when voicing opinions. Nevertheless, we argue that the voiced opinions and views substantially shape the ongoing discussions and give insights into a diversity of concerns and (niche-) conversations that need our attention.

Finally, one can argue that the expression and negotiation of judgments in social media is highly influenced by news media. However, recent developments in the political arena, such as the unexpected election of Donald Trump or Brexit, have shown that traditional news media are not always a good indicator for the opinions of large parts of society.

We therefore deem it valuable to include the digital finger-pointing in social media, when assessing the judgements about organizational behaviour. With new tools of big data analytics we can access and include every single opinion from the millions of public voices and therefore account for a large heterogeneity of norms, values, expectations, and experiences.

Michael Etter, PhD, is a Marie Curie Research Fellow at Cass Business School, City University London.

Pic by Ky, Flickr

Concepts, CSR, Development, Equality, Ethics, Featured, Investment, Issues, Models, News, Philanthropy, Sustainability

The Task At Hand: Facing a Trump America

The following post by American CBS MBA student Wynne Lewis is an accompanying piece she wrote recently for the Financial Times’ MBA Blog.

Titled “Case for responsible business post Trump and Brexit shocks“, Wynne spoke to the shocks of the recent inauguration of Mr. Trump in the U.S. and the vote for Brexit in the UK. She argues that these events are creating many setbacks to the strides we have taken recently in favour of human rights and combating climate change. But they are also catalysts for positive change for the individuals who are fired up and ready to go stand up for what matters most – for example by contributing to a more sustainable economy by founding your own venture.

Read the full post on the FT MBA Blog.

In her latest piece on the CBS MBA blog, she now offers a little bit of inspiration to get you started with making a change.

By Wynne Lewis.

As Eleanor Roosevelt once said,

“You gain strength, courage, and confidence by every experience in which you really stop to look fear in the face. You must do the thing you think you cannot do.”

We fear regression, but there is much we can do.

I spoke with my classmates (representative of countries from all around the world), my professors, and visiting speakers and here is a little bit of inspiration to get you started.

For Employers / Employees:

  • Recognise the power of business. Do not be ignorant to your own influence. There is no such thing as an a-political corporation in the polarised climate under which we are operating today. Every decision must be intentional.
  • Create meaningful working class jobs. If your consumers are voting pro-nationalism, are they willing to pay a higher price for locally sourced products? Can you source your products or raw materials locally? Can you conduct market research to prove your case to investors? There may even be a risk management case to make for keeping the supply chain close for better transparency.
  • Treat your employees with respect and invest in their development. Look at the most recently hired/promoted people at your company. Are they a diverse group? Are you promoting from within? If not, chances are good that some of your talent is falling through the cracks or not being developed. It may not be intentional, but you can become aware of it and take strides to be sure you are capitalizing on your best resource – your employees.
  • If you have employees who may feel marginalised or unsafe in the current social climate sparked by the election, reach out and check-in with them. Do they feel safe in their commute to work? (This has been very relevant for many of my friends living in New York, so it is worth asking.) Is there anything you can do to help? Has the office climate changed at all for them? It is important that they are able to focus on doing a good job without feeling marginalised or harassed at work. Keep tabs on this. If handled with care, you will foster the establishment of a strong working environment and retain your talented minority (women included) workers.
  • Look for business opportunities. What was the change you were hoping for? Is there a gap in products/services today and the products/services we need to achieve that change? Your next great venture may just be hidden in the void.

You will know best how these things must ultimately align with a clear business case appropriate for your company, but it is important to point out those business practices that shape our countries, our politics, and ultimately our societies.

For Investors:

  • Divest from energy companies who are not investing in the future. Oil is booming right now with the recent elections, but the future will hold a diverse portfolio of energy sources. Companies who are only focused on fossil fuels are resisting innovation.
  • Be an active voter in the companies you invest in. If you hold stocks in companies that are doing things that you do not support – underpaying workers, polluting, vocalising racist sentiment – use your voice as a shareholder to change things. Be active and let them know that as an owner you do not support the way they are operating the business. Chances are high, you are not alone. Get other investors involved.
  • Invest in companies that are good for people, planet, and profit. There are many resources for those interested in impact investing. Read up and put your money where your values are.

On the personal side: invest in values you care about. Whatever they are, donate your time or money to the things that matter most. Create the world you want to live in and that you want your children to live in. Consider it a long-term investment.

The most important thing ultimately is to do something. So get out there, and be active.

Have some great ideas? Please add a comment below.

Based in New York, Wynne is currently enrolled as an MBA student at Copenhagen Business School. She was attracted to the Copenhagen MBA for its strong focus on Responsible Management and the promise of a global classroom. Post-MBA, she is toying with the idea of starting her own venture. She is a blogger for the Financial Times MBA blog, where she hopes to tell the story of what really powers her passion for Responsible Management on the far-reaching global business platform that is the Financial Times.

Pic by Pexels

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CSR is Dead. Long Live CSR

By Andreas Rasche, Mette Morsing, and Jeremy Moon.

We – Andreas Rasche, Mette Morsing, and Jeremy Moon – just edited an international textbook entitled Corporate Social Responsibility: Strategy, Communication, Governance (Cambridge University Press). When talking to people about the book, one common response was: “Why didn’t you just call it Corporate Sustainability? After all, this term is used by everybody these days…” In 2014, Peter Bakker, the President of the World Business Council for Sustainable Development, even declared: “CSR is dead. It’s over.” And Michael Porter and Mark Kramer made a very similar claim when pitching their “shared value” concept a couple of years earlier.

Mr Bakker’s main point was that CSR is mostly about philanthropy and that it is not properly embedded into business models yet. It is hard to disagree with this statement, but nevertheless neither Mr Bakker nor Mr Kramer and Professor Porter got to one point:

The core of the problem

First, if you do not have an antique understanding of CSR (as preached in the late 70s), you will recognize that it actually is about integrating firms’ social and environmental responsibilities in their value and supply chain activities as well as their business models. This is precisely what the entire debate on “strategic CSR” has been aiming at. Those companies who understand CSR in a contemporary way know that they have to integrate their responsibilities vis-à-vis society into everything they do; and this is not necessarily because they are environmentalists or social protagonists but because this is what society expects from them and this is what provides them with their license to operate.

However, simply changing labels from “CSR” to “Corporate Sustainability” won’t make firms more aware that their business models need to be aligned with their responsibilities vis-à-vis society. While Corporate Sustainability may enable a smoother dialogue between management scholars and economists and while it may also help to engage in dialogue with peers from the natural and technical sciences, it also blurs the importance of firms’ ethical responsibilities. In fact, one could argue that while the Corporate Sustainability language has increasingly helped to engage the investor community into what they label Environmental, Social and Governance (ESG) issues, it has also sidelined important ethical dilemmas that were once at the core of the debate.

Second, we should not too quickly disparage corporate philanthropy as an outdated concept. Currently, philanthropic contributions are a key driver of many partnerships in support of broader development goals such as the UN’s Sustainability Development Goals (SDGs). Also, philanthropic contributions are often quite “strategic” – many firms directly benefit from such contributions, such as when charity investments in education secure a skilled future workforce. Also, many SMEs make strong philanthropic contributions to the local communities around them – for them CSR is a matter of personal values (often driven by the owner-manager).  Yet, this can bring benefits of employee motivation  (as, somewhat paradoxically, even Milton Friedman noted), social marketing and customer loyalty.

The bottom line: rationales, not labels

The core of the problem lies not so much in labels. It more profoundly lies in the challenges that systemic injustice, corruption, human rights and climate change pose for society and for business, and the resources and strategies that businesses bring to address them. Therefore, we should not focus too much on labels – labels come and labels go. But we should rather focus on ‘rationales’.

Actually, Chapter 2 of our book makes exactly this point. Corporations are often quickly relabelling and repackaging their engagement with responsible and sustainable business. What was formerly described as ethics was translated into CSR and now turns into Corporate Sustainability. In the future it may be given even another name. This is not to say that corporate practices are not changing. Actually, there is a lot of innovation around corporate sustainability and many firms have learned a great deal about which material issues need to be addressed. It is to say, however, that we should not simply throw away the “old” and believe that the “new” will be the Holy Grail.

In this sense, editing a textbook on “Corporate Social Responsibility” is a very timely undertaking. We cannot ignore the big societal challenges that are ahead of us, and by educating the business wo(men) of tomorrow we have to acknowledge that firms’ responsibilities have to be deliberately managed, regardless of whether we call this “CSR”, “corporate sustainability”, “shared value” or something else. We hope that our book will convey exactly this message.

CSR is a continuous journey

The point for us is this: Responsible and sustainable business has to be alive in our minds; it has to shape what we do, how we do it, and why do it. We have to look beyond and behind the different labels we ascribe to responsible business behavior. Truly engaging with a book is but one of the many important ways to achieve just that… CSR is a journey that has just begun and that continues to unfold on a daily basis.

Long live CSR!

Info: The book “Corporate Social Responsibility: Strategy, Communication, Governance” edited by Andreas Rasche, Mette Morsing, and Jeremy Moon is available from 17 March 2017.

Andreas, Mette and Jeremy are editors-in-chief of the BOS Blog and Professors at Copenhagen Business School’s World Class Research Environment Governing Responsible Business.

Poster by Cambridge University Press.

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CBS UN Global Compact PRME report on progress: Not only what, but also who

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By Lavinia-Cristina Iosif-Lazar.

68 pages, 6 principles, one year of data collection and CBS’ 4th report to the UN Global Compact PRME initiative: these are the numbers behind the latest report by the Principles for Responsible Management Education (PRME) .

The report is now out and presents the main responsibility-related research projects, initiatives, publications and activities that have taken place throughout CBS over the course of the last two years. It is also, what we at the PRME office call “The CBS responsible management phone book”.

The paper presents the way in which CBS lives up to and embeds the six Principles for Responsible Management Education (purpose, values, method, research, partnership, dialogue), which constitute the foundation for the work we do on responsible management education. They provide a solid structure to help us excel in important areas that will contribute to improving our curricula and research.

The principle logos are allocated to each activity to indicate which principle(s) are being addressed. It also brings together in one, overreaching document, researchers, faculty and student organizations from across CBS working with responsibility in management education, sustainability, CSR, business and human rights, development studies and green tech to name but a few. Spanning from Green Shipping to Corporate Social Voluntarism, from student-led initiatives to external partners engagement projects, the report encompasses the diversity of CBS’s view on responsible education.

Having been previously granted with an “Excellence in Reporting” award by UNGC PRME, we constantly strive to put together the best possible report, documenting CBS’ work within responsible management, but also, more importantly, to draw special attention to the people behind this work.

You can find the entire CBS Report at here.

Note: Launched at the 2007 UN Global Compact Leaders Summit in Geneva, the Principles for Responsible Management Education (PRME) initiative is the largest organised relationship between the United Nations and business schools. The mission of PRME is to transform management education, research and thought leadership globally by providing the Principles for Responsible Management Education framework, developing learning communities and promoting awareness about the United Nations’ Sustainable Development Goals.

Lavinia is project coordinator at CBS PRME. Visit the PRME office at Porcelænshaven 18B, Room 1.123. Follow CBS PRME on Twitter, Instagram and Facebook.

Pic by CBS PRME.

Concepts, Ethics, Featured, Governance, Issues, News, Technology

Digitally Dominant Corporations

By Glen Whelan.

On Friday the 26th of January, Denmark’s foreign minister Anders Samuelsen announced that Denmark is to appoint the world’s first ‘digital ambassador’. In an interview with Politiken, and as reported by The Local, Samuelsen explained the decision by noting that digitally dominant “companies like Google, Apple and Microsoft ‘affect Denmark just as much as entire countries… These companies have become a type of new nation… and we need to confront that’”. Whilst Samuelsen was careful to note that Denmark “‘will of course maintain our old way of thinking in which we foster our relationships with other countries’”, he emphasized that “‘we simply need to have closer ties to some of the companies that affect us’”.

A Contentious Trend

Whilst Denmark appears to be the first country to so formalize relations with digitally dominant corporations, the conceiving of corporations as being state like is not particularly new. In 2016, for example, Foreign Policy magazine named Google as its ‘Diplomat of the Year’ due to its “digital diplomacy” and its “empowering citizens globally”. And approximately ten years prior to this, there was a spate of works suggesting that multinational corporations were beginning to take on increasingly state like responsibilities for individual citizenship rights, and that it was multinational corporations that were the new Leviathans of our time.

This trend to conceive of states and corporations as being on something like an equal footing, however, has often been criticized. Forbes contributor Emma Woollacott, or example, chastised Samuelsen for implying that if an organization amasses enough money, then it can “get a government to give… [it] not only special attention but a unique political status”. She thus suggested that whilst “appointing a senior official tasked with negotiating with tech companies makes a lot of sense, equating those companies with nations sets a rather worrying precedent”. In echoing what is now the decade old claim that corporations would likely seek protection “against arbitrary interference and expropriation by governments” for taking on ‘governmental’ responsibilities, Woollacott worries that equating corporations with governments will simply increase the power the former have over the latter.

A Symbolic Turn

In contrast to such normative concerns, Copenhagen University’s Martin Marcussen suggests that the Danish government’s planned appointment of the world’s first digital ambassador will be little more than symbolic. According to his understanding of the Foreign Ministry, “the ambassador will get an office, practically consisting solely of that individual. He or she will… be able to travel around, but it’s just one person, so one can’t expect too much’”.

In and of itself, this statement is difficult to argue with. Nevertheless, it risks obscuring the digital ambassador announcement’s important, albeit largely implicit, suggestion, that it is not corporate power in general that we need to be wary of, but the power of high-tech digital corporations in particular. The first point to take away from recent developments, then, is that the Danish government’s recognition that digitally dominant corporations have a significant impact on the life of Danish (and other) citizens is well founded.

The second and more important point to take away, however, is that we risk misunderstanding the uniqueness of such impacts by trying to conceive of digitally dominant corporations as governments, or by conceiving of their unique political status as arising once governments recognize them as ‘equals’. Indeed, the unique political importance of such digitally dominant corporations is clearly diminished by such an equating.

In other words, when we equate digitally dominant corporations with governments, it tends to take attention away from the fundamental, multitudinous, and technologically informed, ways, in which they (indirectly) shape what we consume, discover, experience, forget, and remember, on a daily basis. If Denmark’s digital ambassador announcement helps us recognize as such, then it will prove to be a very good thing.

Glen Whelan is Governing Responsible Business Fellow at Copenhagen Business School and Social Media Editor for the Journal of Business Ethics. He’s on twitter @grwhelan and @jbusinessethics.

Pic by cea +, Flickr, edited by BOS

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US versus Him

By Catarina Pessanha Gomes.

The past months constituted the culmination of a sequence of events, completely unthinkable even one year ago. These events led to the inauguration of a man that many consider unfit for its position, a man demonstrating unprecedented levels of intolerance, bigotry and racism, a man questioning the foundation of our political system, separation of powers, free press, equality of rights, one tweet at the time.

Like many of us, my heart has been hesitating between a deep state of anxiety for its future decisions and a slight nausea when looking at its proclamation as Time’s person of the year. Yet, this got me thinking about the incongruity of reducing a whole sequence of events, times, peoples and places to a single individual, a troubled reflection of the individualistic tendencies of our societal and political system. While not dismissing the reality of asymmetrical power relations, the emphasis of this post is placed on the anonymous mass, the hidden collective power often forgotten by our political system, but also in our academic fields.

The common, collective, anonymous power is often left unstudied at the profit of the single individual, be it the President, the CEO or, in my academic field, the entrepreneur. Hence, I decided to put aside the overwhelming amount of research focusing on the personality of these special, heroic individuals, constituting a popular narrative of uniqueness and success, focusing instead on organizational studies calling for a comprehension of entrepreneurship in its everydayness, as a societal process with multiple actors and stakeholders rather than an individualistic phenomenon.

The sociologist Richard A. Peterson and Pardo´s studies open the door for considering entrepreneurship not as a special person or situation, but as an action commonly shared that can occur anytime. In this regard, the latter put forward a perspective on entrepreneurial moves through which citizens, here the popolino of Naples, create new possibilities in life, situating entrepreneurship beyond formal economy.  Recognizing this collective entrepreneurial action is the first step towards serious political changes, as our democratic system needs to be modified to recognize, listen and integrate this common potential in the political game as a legitimate form of power.

Lyotard states that the world is composed of events giving rise to multiple interpretations, and maybe I really needed a new storyline to help me cope with the current events; maybe I could not make sense of Donald Trump as the final expression of what our society can produce. Nevertheless, for the next four years, I will keep in mind that politics also lies on the everyday, collective power that change society in the shadows, the men and woman giving a hand, creating, collaborating, in organizations or in the anonymity of their own houses, making “US” the people of the year, one action at the time.

Catarina is a PhD Fellow at the Department of Management, Society & Innovation at Copenhagen Business School. Her PhD project investigates partnerships between social entrepreneurs and public institutions, with a particular focus on how social entrepreneurship can be institutionalized.

Pic by the Office of the President of the United State

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Trumpism: On the road to state capture?

By Hans Krause Hansen

The inauguration of Donald Trump as President of the U.S. has caused widespread concern. On the long list of worries is Trump’s approach to corruption. With his business empire including hundreds of legal entities across the world, conflicts of interests will pile up.

Corruption is about office holders’ misuse of public office for private or organizational gain, and it has a wide reach. Grand corruption involves the collusion of networks of economic and political elites across national borders. Powerful corporate actors make business deals with political and administrative leaders at various levels, if not directly, then through intermediaries. While always difficult to document due to the secrecy of the deals, we only need to recall the Oil-For-Food and Siemens scandals to confirm that such things indeed take place on a massive scale.

Historically the U.S has suffered from various forms of grand corruption, like any other country. But U.S. governments have also come to play an important role in attempts to curb it. The country pioneered the prohibition of corporate bribery of foreign public officials, and many countries have followed suit. U.S engagement in anti-corruption, and anti-corruption itself, has been subject to controversies. But there is growing acknowledgement across the world of the damaging effects of corruption on economic affairs and trust in political and administrative institutions. Human rights, security and the environment are all affected negatively by corruption.

What are the policies to expect from Trump and his new administration on these matters? Of course we don’t know yet, but there are certainly issues to keep an eye on in time to come.

Conflicts of Interest

During the electoral campaign and as president–elect, Trump waged a war against corruption. Framed in the now well-known Trumpian elite vs. people metaphoric, its primary target was the Washington establishment.

But there are good reasons why Trump better begin to clean up his own house. Just before inauguration Trump explained his plan for how to separate his business empire from the work to be undertaken from the Oval Office. His decision not to create a blind trust for his assets, as well as the appointment of his closest relatives to run the Trump Organization instead of an independent board have been met with widespread suspicion Even from those who speculate it’s unfair that entrepreneurs involved in public life can ultimately be required to liquidate their business have lamented the absence of arms length.

So too has the general lack of transparency in Trump’s tax returns. Two days after his inauguration, WikiLeaks tweeted that “Trump’s breach of promise over the release of his tax returns is even more gratuitous than Clinton concealing her Goldman Sachs transcripts.” The organization has called for someone to blow the whistle.

Walter M. Shaub, Director of the U.S. Office of Government Ethics has stated that Trump’s plan for avoiding conflicts of interest “does not comport with the tradition of our Presidents over the past 40 years.” Since the Watergate scandal, maintaining business while in office has been seen as ethically irresponsible and against the law. Moreover, it sets a very bad example: “The signal a President sends set the tone for ethics across the executive branch. Tone from the top matters.”

Following his statements, Shaub was called to testify before lawmakers in the House of Representatives, a step seen by many as a threat to his office.

The Emoluments Clause

With his family running the business empire, the President will of course be able to interfere directly in it. But he can also come under unduly influence of foreign powers, some of whom may already be enmeshed in it.

But the U.S. Constitution, as well as federal statutes that address nepotism, bribery and so on, forbid office holders to accept presents and other services from foreign powers. Legal scholars have discussed why and how in a recent study of the so-called Emoluments Clause of the U.S. Constitution. While many transactions between the Trump empire and foreign powers will probably not involve “actual impropriety”, it is “a virtual certainty that many would create the risk of divided or blurred loyalties that the Clause was enacted to prohibit.” In a situation “when there is overwhelming evidence that a foreign power has indeed meddled in our political system, adherence to the strict prohibition on foreign government presents and emoluments ‘of any kind whatever’ is even more important for our national security and independence.”

State capture

So the fear is not only that Trump’s business liabilities may affect how he deals with the banks to whom he owes hundreds of millions of dollars in debts, but also how he will approach foreign countries that become business partners or seek special favors. Worst case, Trump’s presidency may lapse into state capture, a term referring to the systemic corruption of business and politics relations. Individuals, organizations and interest groups, domestic or foreign, can come to have disproportionate influence over policies and regulations emanating from the Oval Office and the administration.

Tools for state capture include the buying of laws and decrees, illicit or disproportionate contributions to political parties and groups, manipulation with electoral processes, illegitimate lobbying and revolving door commitments, and not least, through friendship, family ties and intertwined ownership of economic assets. State capture has many facets. It is often related to the illicit financial flows characterizing particular industrial sectors with profound economic and political power asymmetries. Some sectors are high risk, such as the extractive industries.

State capture and its associated processes of favoritism, bribery and blackmailing will need much more attention in the future. Especially the recent mobilization of digital technologies, hacktivism and cyber wars in the election of Trump draw attention to the increasing sophistication of the tools being used. The unknowns of Trump’s business ties to geopolitical adversaries and allies across the globe, together with the skillful use of digital technologies to manipulate global publics, will hopefully prompt investigative journalists and researchers to scrutinize what is going on and what to do.

Adiós FCPA?

A final set of speculations focuses on Trump’s stance towards the U.S. Foreign Corrupt Practices Act (FCPA), a legal cornerstone in the history of international anti-corruption. The FCPA was signed into law in 1977 after the Watergate scandal. It has extraterritorial reach and prohibits U.S. corporations from bribing officials of foreign governments in order to obtain business. The FCPA has inspired legal initiatives elsewhere, including the recent U.K. Bribery Act and important international anti-corruption conventions under the auspices of the OECD and UN, amongst others. Anti-corruption efforts by the World Bank and the International Monetary Fund all echo various aspects of the pioneering FCPA, all of which tie into the much broader work of the world’s leading civil society organization on anti-corruption, Transparency International.

Since 2004, U.S Authorities have scaled up FCPA enforcement, targeting U.S companies and foreign companies. The FCPA is one of the key reference points for the increasing development and implementation of corporate compliance programs in multinational companies worldwide.

But will this continue? In 2012 Trump stated that the FCPA is “horrible law and it should be changed”, and also that it puts U.S. companies at a “huge disadvantage.” That fits with Trump’s preferences for U.S companies winning and his disdain for moral niceties.

However, let’s all take a deep breath when it comes to FCPA enforcement in the Trump Administration, as writes the FCPA Professor, a website that deals extensively with legal issues relating to corruption, anti-corruption and other interesting matters. The fate of the FCPA will depend on the more precise composition of the agencies responsible for the FCPA, bureaucratic inertia and a lot of other priorities. The FCPA Professor further notes there are probably “too many people making lots of money based on the current FCPA enforcement environment for FCPA enforcement to experience a sudden dramatic change.” Anti-corruption has become an industry, a profession, with lawyers, accountants, compliance officers and CSR consultancies making a living by providing expertise. No wonder that corruption has come to be seen as a risk to be managed, even by corporations themselves.

In conclusion, there are many reasons to be worried about what comes next from Trump in matters relating to corruption and anti-corruption. We are indeed in a phase of massive uncertainty and confusion, with unpredictability reigning, also in this area. Notable exceptions in the business of prophecy certainly do come around now and then, but not always for the good.

Hans Krause Hansen is Professor at the Department of Management, Society and Communication, Copenhagen Business School. He teaches and researches about various aspects of public and private governance, including corruption, anti-corruption and transparency regimes in the global North and South.

Pic by Chris Potter, Flickr