News - Page 2 of 7 - MSI Integrity

Rethinking MSIs: Q&A on the Blog Series

In July 2020, MSI Integrity launched the blog series, “Rethinking Multi-Stakeholder Initiatives,” with Harvard Law School’s International Human Rights Clinic (IHRC). Accompanying the publication of MSI Integrity’s major report, Not Fit-For-Purpose, the blog series sought to share several critical perspectives on the MSI field. The contributions largely honed in on two of the key questions posed by the report: are MSIs working for rights holders, and do we need to rethink the role of MSIs as human rights tools?

Beginning with Christie Miedema in her piece, “Binding Brands to Create Change,” and ending with Fola Adeleke’s “Rethinking Corporate Accountability,” the series amounted to nine thoughtful contributions. To close the series, Amelia Evans and Teddy Ostrow of MSI Integrity shared their thoughts on some of those perspectives, as well as what’s next for the organization.

Teddy Ostrow: Amelia, can you recap the purpose of the nine-part blog series, “Rethinking MSIs,” and how it’s relevant to global politics right now?

Amelia Evans: The devastation caused by this global pandemic has pushed many people to a place of discomfort: to confront what many communities and activists have long been saying—that our economic, legal and political systems are failing to protect people and the planet. Debates and discussions have been unfolding in certain quarters about which, if any, of our existing frameworks, tools and strategies have been able to meaningfully address the vast societal inequities that characterize our time, and thus which interventions should accompany us—or might propel us—into a more equitable and just future. While by no means prompted by COVID, as we recognized the failures and limitations of MSIs well before then, this series on “Rethinking MSIs” can be seen as part of those more probing and deep reflections on the adequacies—or rather, inadequacies—of our existing system of rights protections and measures to address corporate power and abuse.

This series—and our report—is also deeply relevant within the specific business and human rights context. First, the single unifying thread of all the voices in this series, consistent with the key finding of Not Fit-for-Purpose, is that voluntarism is inadequate for ensuring the protection of rights. The insufficiency of MSIs underscores the need for efforts underway for binding human rights regulations. These range from the ongoing UN business and human rights treaty negotiations (the sixth session took place as this series unfolded), through to regional, national and local efforts.

Second, there are important implications for the content of such regulation. In particular, some of the contributors in this series point to mandatory human rights due diligence-—which is central to both the treaty and many proposed new national regulations—as the solution. But is it? By itself, this seems unlikely. To begin, the proposed European law has a safe harbour provision that will limit liability if companies implement yet to be determined “recognised (industry) standards”—presumably, this includes the standards set by MSIs. Beyond this circularity, the questions of whether due diligence will ensure actual accountability for abuse—rather than accountability for failing to follow due process—or meaningful access to remedy for communities loom large, as does something much more significant that is raised by this blog series: are reforms enough, or is what we need a transformation of our entire system?

TO: All of the contributions bring up pretty critical points about the MSI field, but I wanted to pick out a few from the series to explore with you further. Let’s start with the contribution from Harris Gleckman, a longstanding expert on MSIs. His contribution, “Where is the Debate About Democracy and Multi-Stakeholder Governance?” outlines a crucial component that he sees as missing in MSIs: democracy. Where is or isn’t “democracy” in MSIs and the debates surrounding them?

AE: In basic terms, if, to you, democracy is merely a system of rules about casting votes, then MSIs have that in spades! All the MSIs in our database are governed either by majority vote or consensus. Many have bylaws or charters that run for dozens of pages, outlining specific rules for membership, voting and other governance matters.

On their face, these rules might seem notionally democractic. But democracy is not just about rules. Its literal translation is “people power.” However, as Jaff Bamenjo points out in the series, MSIs are arguably just “lip service” for communities. The people most directly affected by MSIs-—the workers or communities whose rights are at jeopardy as a result of corporate or government behavior–rarely have a voice in their governance or operation. Only 13% of MSIs have any community or worker representation, and those representatives are not democratically elected or otherwise accountable to the broader constituency of workers or communities. Thus, decisions about the human rights standards, monitoring systems and remedial mechanisms of MSIs—all of which are structures intended to be used or directly benefit rights holders—are made with little, if any, input from rights holders. Sure, many MSIs offer “public consultation” periods that technically allow for community input. But our experience from interviewing almost 120 workers and community members who work or live near companies participating in MSIs from the Philippines, Nigeria and Cameroon, was that these individuals had very little, if any, engagement or familiarity with MSIs that were supposed to protect their rights or offer them access to remedy. They rarely even knew about their rights to file complaints, let alone the websites and forms they would need to access if they wanted to shape standards or request MSI board members take actions that would better protect their rights.

In my conversations with MSI staff, or corporate and government MSI members over the years, many have explained that it is civil society who act as a proxy for community voices. However, not only are most of the organizations that participate in MSIs large international or capital-city-based organizations without direct connection or engagement with communities—think large international NGOs or national research or policy institutes—but few would understand their role as representing communities. Put simply, MSIs are top-down initiatives, not bottom-up democratic institutions.

This is to say nothing of the power imbalances and lack of equality between civil society and corporations, which—as is explained in detail in Not Fit-for-Purpose—the formal rules and processes set by MSIs do little to address. Indeed, many of the rules and processes MSIs have have the perverse effect: putting more burdens on civil society.

TO: Judy Gearhart of the Accountability Research Center wrote about how MSIs have failed to fill governance gaps, one of their key original purposes. As Gearhart explores, how do we “cure the governance gap” and are MSIs a means to that end?

AE: MSIs were formed as a result of the dearth of global, national and even local human rights protections—or the failure to enforce those human rights laws or standards that do exist. Like Judy, and indeed almost all of the contributors to this series, I believe that MSIs have not been able to close those gaps. After a decade of examining dozens of different initiatives, we have amassed a wealth of evidence that MSIs will never be fit-for-purpose to close those gaps.

Why? Because MSIs have not fundamentally restricted corporate power or addressed the power imbalances that drive abuse. Companies have preserved their autonomy and safeguarded their interests throughout the design, governance and implementation of MSIs. The mechanisms most central to rights protection, such as systems for detecting or remediating abuses, have been structurally weak. This has meant that MSIs are capable of achieving positive outcomes where there is genuine commitment on the part of corporate members to change; however, when that goodwill breaks down—as it often has—MSIs have been able to do little to protect human rights.

This doesn’t mean that MSIs cannot play a role in the promotion of human rights, or that they have not had successes. Many participants in MSIs have reported the positive opportunities that MSIs present for learning, relationship-building and experimentation, all of which represent functions that MSIs are well-suited to serve. But as robust rights protection or accountability institutions, MSIs have failed.

TO: Bennett Freeman contributed a piece that draws on his vast experience creating, and working with and in, MSIs. Rather than scrap MSIs all together, he recommends revitalizing them, making them “fitter-for-purpose.” Will MSI Integrity be supporting that notion in its future work?

AE: With intensive external pressure and more resources, might MSIs be capable of incremental improvements? Sure. However, simply and fundamentally, they are not structured to hold companies to account or provide survivors of abuse with access to remedy; they are tools that share power with corporations, rather than restrict or limit that power. Reports of MSIs certifying companies despite their use of child labor, deforestation or poverty wages continue to surface. This is why it is time to recognize their limitations: MSIs are tools for corporate engagement, not corporate accountability.

To us, three decades of experimentation with trying to make MSIs serve accountability or remedial functions is enough. We live in a time of climate emergency, extreme economic inequality and deep racial injustice—all of which have direct links to corporate behavior. There is not enough attention on addressing the root causes of abuse: the incentives and decision-making structures in companies that drive them violate the rights of communities and workers. As we announced when we released this report, we believe it’s time for the human rights community to begin to challenge and change the corporate form itself: to put communities and workers at the center of the governance and ownership of businesses.

TO: One last contribution I want to highlight is a creative one by Tyler Giannini, Director of the IHRC, who we partnered with in the blog series, and Rebecca Tweedie, a Harvard Law Student and former intern at MSI Integrity. They talk about how corporations in MSIs are like foxes in the chicken coop. What are they saying here? And how should we extend the lessons of corporate power in MSIs to other types of multi-stakeholder projects and efforts?

AE: Tyler and Rebecca’s contribution importantly recognizes the extraordinary power differential between corporations and civil society. The premise of MSIs is that they actually share power among different stakeholder groups. But not all stakeholders are equal. Corporations have significantly greater power and resources than civil society and communities, and indeed, many governments. Thus, without a concerted effort to fix this power imbalance, corporate interests have generally won out in MSIs. Rather than insisting on rigorous mechanisms or binding commitments that would help curtail corporate power—such as requiring members to adopt legally enforceable standards, or subjecting members to the authority of a robust and independent grievance mechanism—at each turn in their design, MSIs have adopted approaches that allow corporate interests to prevail. In this context, the regulated target—the company—is left with immense control over efforts to improve its conduct and extensive power to push for compromise in contested areas. This is in counterpoint to the legally enforceable initiatives of the Worker-Driven Social Responsibility Network, such as Milk with Dignity and the Fair Food Program, that are designed by and for workers.

As we move our horizons to challenging and reimagining the corporate form itself, the lessons here are significant. To begin, it is clear from the grand experiment of multi-stakeholderism that voice does not equal power. Thus, adding worker representatives on corporate boards, by itself, may not be the silver bullet, despite the idea’s growing support amongst reform-minded politicians and researchers. The devil will be in the details: do they have majority or veto power? Are they accountable to the wider workplace? Are they sufficiently resourced and empowered? Put another way, the lesson of multi-stakeholderism is that we must meaningfully transfer decision-making power away from dominant corporate interests to workers and communities. If we do not, we risk embedding and perhaps even enlarging corporate power and interests.

TO: How will this blog series inform MSI Integrity’s work going forward?

AE: Well, you are helping to craft those next steps too, and I’ve already thrown out a lot of thoughts. Let’s mix it up: how do you think it is shaping our future work?

TO: If you say so.

Although we’re moving away from the MSI as our primary focus, their influence on debates and actions around human rights and economic inequality are inescapable. The international standard-setting MSIs that our organization studied until this recent shift are important test subjects for the broader expansion of multi-stakeholderism across private and public institutions. Therefore, putting the magnifying glass on MSIs, as this blog series did, is critical to understand how this model impacts rights holders, and what bits and pieces of it we should take, if any, as we pursue alternative means of rights protection and economic and social liberation. The blog contributions tackle both the technical minutiae and the birds-eye view of MSIs. And if we’re going to pursue more equitable models for our economy, we need both. We need vision and we need the details.

I understand this blog series as having a two-pillared meaning for MSI Integrity. First, is that it’s a form of closure for us as we move onto our new direction. And second, it’s also an opening, both for us and the broader business and human rights or corporate accountability communities, to question our assumptions about how we shape our primary economic engines—corporations—and all the institutions that revolve around them. Rethinking MSIs is one way to get that started.

AE: Bingo. There are also important lessons that apply when imagining and promoting alternative business structures. From the importance of transferring power, rather than simply notionally sharing it in ways that simply reinforce existing power imbalances, through to experiences from MSIs about what enables meaningful worker and rights-holder participation, representation and engagement in complex operations or governance arrangements. Understanding how the limits of multi-stakeholderism at an industry-level translate to whether or how multi-stakeholderism should apply at the firm level.

Amelia Evans is the Executive Director and co-founder of MSI Integrity. She is an international human rights lawyer and an Open Society Fellow on Economic Inequality.

Teddy Ostrow is Research and Communications Associate at MSI Integrity and an associate editor at OR Books.

This Q&A closes the joint blog series by the International Human Rights Clinic and MSI Integrity. The series critically examined the role and value of MSIs in business and human rights; it coincided with a new report, Not Fit-For-Purpose, which compiles experience and insights over the last decade and explores cross-cutting trends and lessons learned about MSIs, as a field, from a human rights perspective. Read other blogs in the series here.

Rethinking MSIs: Rethinking Corporate Accountability

By Fola Adeleke

A version of this contribution was originally published by Afronomics Law on December 11, 2020.

Earlier this month, investigative journalists disclosed that Indian garment factories responsible for the supply to global supermarket chains such as Marks & Spencer, Tesco and Ralph Lauren were exploiting their workers. Some of the allegations include poor wages, 22-hour work shifts with no toilet or water breaks. These conditions exist despite the existence of a local law, the Indian Factories Act, which sets out working conditions for workers in this industry. More importantly, the brands that use these suppliers in India are all part of the Ethical Trading Initiative (ETI) that was set up in 1998 shortly after the sweatshop conditions that engulfed major brands such as Nike and Gap in the 1990s.

The ETI is part of a trend known as multi-stakeholder initiatives (MSIs) that involve a “collaboration among various public and private actors—such as corporations, governments, CSOs, and rights holders—that have a stake in an issue.” These MSIs set global voluntary industry standards for its members to follow and are often punted as addressing issues of public concern such as human rights violations in specific industries. These MSIs are geared towards establishing a governance model to tackle a gap “where a state either cannot, or will not, fulfill its duty to protect its citizens against human rights violations by companies.” The stated aim of the ETI is to improve working conditions in global supply chains by developing effective approaches to implementing the Base Code of labour practice developed by the initiative.

Despite the increasing popularity of MSIs, it is clear that self-regulation through this governance model is not the answer to driving corporate accountability for matters of public concern such as human rights protection. In a report released in July 2020 by MSI Integrity, a non-profit originally dedicated to understanding the human rights impact and value of MSIs, it was found that MSIs are not effective tools for holding corporations accountable for abuses, protecting rights holders against human rights violations, or providing survivors and victims’ with access to remedy. The report showed that we need to rethink the role of MSIs and the presence of an MSI in an industry should not be a substitute for public regulation.

In the particular case of the ETI, the initiative’s own self-evaluation into whether it has delivered on its mission and theory of change found as far back as 2015 that “corporate purchasing practices and weak trade unions were key areas to address in efforts to produce meaningful improvement in working conditions.” Yet, five years later, the MSI has not addressed this issue and the ongoing violations taking place in India have become known. The initiative acknowledges that the tripartite nature of trying to please stakeholders from the public, private and civil society sectors threaten “meaningful action because it necessarily entails conflicting interests and objectives between members.” These findings show that the grand experiment of MSIs as described in the MSI Integrity report is not working. While there are modest achievements such as the success with the elimination of child labor practices among the members of the ETI, for example, we need to revisit why public regulation does not suffice in holding corporations accountable in the first place?

Developing new systems for corporate accountability

When corporations commit human rights abuses, the problem is usually not due to a lack of regulation. In the most recent scandal involving India and the garment industry, the Indian Factories Act sets enforceable standards for companies to comply with. This also applies in South Africa where a robust set of regulations including the Labour Relations Act, National Minimum Wage Act and the Promotion of Equality and Prevention of Unfair Discrimination Act all set out comprehensive standards for corporations to follow. Yet, earlier this year, a foreign-owned Durban-based company was found to have been “locking” in its employees within its premises in a race to quickly produce personal protective equipment as COVID-19 was spreading around the country.

This suggests that the issues go beyond regulation and to an extent, enforcement. This brings to the fore the role of state and non-state actors in canvassing for a socially responsible corporation. The legal core of corporations continues to be the prioritization of shareholder value; however, to tackle the governance and accountability of corporations, we need to expand the interests that corporations serve. In the existing model for the corporate form as recognized in South Africa and globally, while shareholders are recognized as those who hold financial interests/investments in a company, there have been attempts to broaden the definition of who a shareholder is with various options emerging, including employee ownership schemes and the recognition of benefit corporations. However, these alternative models do not sufficiently focus on the diversity of stakeholders and the inclusion of rights holders who are affected by a company’s operations in the management and governance of a company. Consequently, MSIs have been championed as the anti-model to the traditional corporate board. Although the presence of different stakeholder groups in MSIs are intended to express the equality of parties in decision-making, the power dynamics in MSIs (big corporation versus local NGO) often affect the effectiveness of these fora.

In order to prevent the use of MSIs for corporate whitewashing and to involve the home state of multinational corporations rather than the singular focus on host states when dealing with corporate behavior, there is an emerging initiative to adopt a binding business and human rights treaty as a form of transnational regulation of multinational corporations. With the adoption of this treaty not guaranteed, urgent mechanisms are needed to provide remedies for corporate violations of human rights. According to the UN Guiding Principles on Business and Human Rights, which backs a role for MSIs in human rights protection, “poorly designed … grievance mechanisms [within MSIs] can risk compounding a sense of grievance amongst affected stakeholders by heightening their sense of disempowerment and disrespect by the process.” While it is easy to identify the important features of a well-designed grievance mechanism such as independence, accessibility, affordability, transparency, efficiency, among others, establishing non-judicial mechanisms with these features are easier said than done.

Looking forward

It is important that future reform on grievance mechanisms, corporate ownership and governance must center workers and communities in a time where economic inequality is expanding and companies are becoming bigger in size, capital, profits and their impact on people and our planet increasingly profound. This will entail new forms of knowledge generation that involve rights holders and other marginalized groups. There are lessons to learn from the emergent solidarity economy and new economy movements (including feminist economics) in both the Global North and South. These utilize community-centered models that prioritize community agency and will generate new ways of thinking about corporate accountability.

Fola Adeleke is Board Secretary of MSI Integrity, Senior Research Fellow with Wits University and an Atlantic Senior Fellow on Socio-Economic Equity at the London School of Economics. He is a South African trained lawyer whose work focuses on international economic law and human rights, corporate transparency, open government and accountability within the extractive industry.

This is the ninth contribution in a joint blog series by the International Human Rights Clinic and MSI Integrity. The series will critically examine the role and value of MSIs in business and human rights; it coincides with a new report, Not Fit-For-Purpose, which compiles experience and insights over the last decade and explores cross-cutting trends and lessons learned about MSIs, as a field, from a human rights perspective. Read other blogs in the series here.

Post-Election, A Constant Remains: Our Planet, Our People Need Transformation

It was always the case that whoever entered or remained in the oval office in January 2021, notwithstanding important differences between the presidential candidates, there would remain a constant; one that has already spanned presidents and congresses, Republican and Democratic alike. That is the US government’s inadequate response to the human, non-human, and planetary necessity to transform our economy and social relations to value people over corporate profit—and obversely, the people’s obligation to force that transformation.

On the grandest scale, the survival of our planet and its inhabitants require nothing short of the greatest shift in economic and social relations in human history. The fossil fuel economy and the extractive economic system of which it is part must be demolished and rebuilt into one that is regenerative, just, democratic, clean, equitable, and sustainable for the flourishing of human and non-human life globally.

Such a shift—which must occur—requires a global, multi-racial, cross-movement effort to expand, democratize, and decolonize ownership and control of land, resources, workplaces, housing, and all the systems of our fast-deteriorating world; one based on solidarity—the understanding that liberation of the most vulnerable is by definition the liberation of all.

This is an incredible task. How will we do it? What actions and frameworks does this effort need to manifest?

As an organization that wants to see the private sector respect human rights and the environment, we have learned that transformative change requires demanding a foundationally different workplace structure. One that centers workers and communities in its governance and ownership, the most consequential elements of economic and social power in the workplace. It means recognizing that having control over one’s workplace and profiting directly from one’s labor must become universal rights for all workers, the benefits of their fruition cutting across race, class, political affiliation, and other social differences.

One duty going forward will be following the lead of the solidarity economy movement and building more institutions and enterprises structured by these principles, such as platform cooperatives and steward-owned companies, and pressuring existing businesses away from the dominant corporate model. Another duty will be demanding President-elect Biden, subsequent presidential administrations, and local and state actors to develop concrete policies that claw back corporate power, dramatically expand community ownership, and put workers at the helm of their own workplaces. Such change is not just possible, but is already happening—albeit too slowly—the bipartisan support and passage of the Main Street Employment Act in 2018 being just one legislative example.

Why do we think these changes are necessary? Because we believe without workers and communities at the center of our economy, the private sector will continue to violate peoples’ rights, deepen economic and social inequalities, and risk environmental collapse.

But the barbarism of both the last four years and the last few centuries will not be undone by our next president; not insofar as strong international and domestic coalitions exerting extraordinary pressure on our entire political and economic systems are absent. In the United States, the Black Lives Matter movement, renewed labor insurgency, and the now greatly unemployed public’s increasing frustration with public institutions, hollowed or privatized by austere neoliberal governance, are the disparate puzzle pieces of transformation. Our work must support and complement organizers and activists already connecting the dots between these issues and movements, as well as other efforts focused on the environment, gender and sexual liberation, anti-imperialism, disability and health justice, indigenous sovereignty, world hunger and poverty, and others to empower all workers and their communities. Indeed, the political strike, a uniting of worker power and social and political movement demands, is no longer a labor action of American history books. Dockworkers struck on Juneteenth in solidarity with Black lives, and as we await Biden’s assumption of power, labor unions were prepared for unprecedented general strikes in the event Donald Trump refused to leave office despite the validity of the election outcome.

Such is the movement-building necessary, in our simultaneously insecure and ripe moment, for deep transformations to our society and economy. It’s time for us to do the work. But what does this mean tangibly? Right now MSI Integrity is examining how we can draw from our experience demanding the private sector be held accountable to human rights standards to go Beyond Corporations, in addition to democratizing how we do that work. We see gaps and untapped alliances in the work of those who are building and creating a solidarity economy, and those who are resisting and challenging corporate power in other capacities, from those fighting against Nestle and Amazon, to debtors’ unions and the struggle for Medicare for All; gaps we can help fill and alliances we can help foster. The coming months will be critical in our own transformation and we plan to detail this shift publicly. Too much is at stake to drag our feet. The post-election constant—the necessity of transformation— will need all hands on deck.

MSI Integrity Webinar — At the Root of Abuse: Challenging the Corporate Form

On September 23, 2020, MSI Integrity led a breakout session, entitled “At the Root of Abuse: Challenging the Corporate Form,” at the International Corporate Accountability Roundtable (ICAR)’s first ever virtual Annual Meeting. Watch the recording embedded above or on YouTube here.

The breakout session explored how the corporation is itself a main driver of human rights abuse and economic inequality, and how more equitable and democratic alternatives could pave a brighter road ahead. Benefit corporations, “stakeholder capitalism,” and reimagining the “purpose of the corporation” have all been proposed as solutions to corporate inequities and abuse—but will they actually mitigate harm and economic inequality? This session looked beyond these limited reforms to explore how worker and community ownership/governance more transformatively advances economic, social and environmental justice, and why corporate accountability activists ought to support these ideas and goals.

The session speakers included Dr. Grietje Baars, senior lecturer at the City Law School at City, University of London, Melissa Hoover, the founding Executive Director of the Democracy at Work Institute, and Amelia Evans, the Executive Director of MSI Integrity. Teddy Ostrow, Research and Communications Associate at MSI Integrity, moderated the session.

The session also presented a video produced by MSI Integrity that features more speakers discussing what they believe makes an “ethical” corporation and what true accountability looks like. They included Dr. Jessica Gordon-Nembhard, Flequer Vera, Mara Zepeda, Mo Manklang, Ricardo Nuñez, and Dr. Surya Deva.

Each of the speakers’ bios and links to their work can be found in this resource sheet provided during the session.

Aleena Pasha: Developing a Community of Practice with MSI Integrity

What are the underlying systems or incentives that drive corporate-related human rights abuse? How could we start to transform the systems or tackle those root causes? What might a progressive vision for the future of corporate accountability look like? How does—or doesn’t—the current human rights framework fit into such diagnosis and visioning?

In the midst of a tumultuous summer, I was fortunate enough to become a summer fellow at MSI Integrity and be a part of the efforts in organizing and creating a community of practice to answer some of these significant questions. After completing my first year at Benjamin N. Cardozo School of Law, I was accepted as a fellow with the COVID-19 Systems Summer Institute: a collaboration between People’s Parity Project, the Systemic Justice Project of Harvard Law School, and the Justice Catalyst. The Institute placed law students from around the world in legal fellowships as we worked to respond to injustices exposed by social and political crises.

The community of practice I helped organize initially sought a shared vision of how we can address or eradicate the structural or root causes of corporate-related human rights abuse. The intention was to look beyond short-term or reactive solutions, and instead to identify and challenge the structures, systems, and underlying incentives that enable corporate abuse or impunity.

From this idea sprung a group of approximately 35 individuals who were interested and committed to collectively exchanging ideas. These individuals came from across geographies and movements having reflected on what they each believed to be the root causes of human rights abuse. From the initial meeting came a number of ideas: profit maximization, shareholder capitalism, corporate capture/impunity, racism, classism, power imbalances, conditioning from historical narratives, the patriarchal ethos of the system, white supremacy, and lack of funding for movement work (to name a few).

The meeting also prompted the desire from the corporate accountability and business and human rights (BHR) participants to learn more from those coming from other movements, and vice versa. As part of our second meeting, participants from non-BHR/corporate accountability movements and groups—i.e. New Economy Coalition, feminist economics, ESCR-Net, and economic justice—began by sharing with the group the work of their movements and the ways that they have been tackling these root causes of human rights abuses.

What emerged from the summer sessions was a significant frustration from participants who felt that these issues were not being addressed to the proper extent in their spheres of work, if at all. What also emerged was an invigoration and desire to take action as they came away with a greater awareness of movement/resistance work that is being done. Many realized that there are movements that they can not only learn from, but also facilitate and collaborate with from their own areas of expertise. With the momentum of the initial meetings, the community has now turned to the next iteration of work that will consist of several thematic working groups focusing on various areas of interest. These might include reimagining the corporate form, challenging shareholder primacy, addressing structural inequality, and tackling financialization. In this capacity, they will develop action plans for their groups, engage in cross-movement building, and consider how to challenge or change public narratives as well as to push change within the BHR/corporate accountability communities.

Changing perceptions, deconstructing historical narratives, and reimaging institutional forms are daunting tasks. At times they seem impossible. Before my summer at MSI Integrity, I was quite pessimistic about the efficacy of initiatives to mitigate human rights abuse. My simultaneous frustration and anger about the state of the world were amplified both in the face of the COVID-19 pandemic that exacerbated so many of these structural issues and in the face of the protests against police brutality and racial injustice that ensued following the murder of George Floyd. It was hard for me to see anything past the need to tear these oppressive institutions down. What the community’s conversation and collaboration did for me was provide a complementing framework of what this transformative work looks like. Abolishing oppressive institutions, such as the corporation, is not only about tearing things down; it is about building things up. The community of practice is working to create new visions of what a different world looks like and to support those movements that are already building their progressive visions. I came across a similar notion in a piece written this summer by writer and human rights lawyer Derecka Purnell in which she frames abolition as “an invitation to create and support lots of different answers to the problem of harm in society, and, most exciting, as an opportunity to reduce and eliminate harm in the first place.”

As I continue my law school journey, I find that the notions of structural inequality that were discussed among the community are at the forefront of my mind. I have used them to inform my thinking in all walks of the law and in all walks of life. Upon the completion of my legal education, I plan to continue contributing to the efforts of those that I have met this summer and others that work every day towards tearing down oppressive institutions and building up their movements and new frameworks for the future. Until these visions are fully realized, I find comfort in a quote that was shared this summer from Arundhati Roy that I have not since been able to get out of my mind: “Another world is not only possible, she is on her way. On a quiet day, I can hear her breathing.”

Aleena Pasha was a Summer Fellow coming to us from the COVID-19 Rapid Response Systems Summer Institute. At MSI Integrity, Aleena was the key driver for implementing and coordinating a community of practice around developing more systemic and transformative approaches to corporate accountability. Aleena is currently a 2L at Benjamin N. Cardozo School of Law where she is pursuing a concentration in international and comparative law. She has a degree in Political Science, Global Studies, and Geography from Hofstra University.

Rethinking MSIs: Restructuring MSIs to Improve Social Compliance in Supply Industries

by Zobaida Khan

After the devastating and avoidable collapse of the Rana Plaza in 2013 in Bangladesh, two innovative multi-stakeholder initiatives (MSIs) emerged: the Alliance for Bangladesh Worker Safety (“Alliance”) and the Bangladesh Accord on Building and Fire Safety (“Accord”).

They engaged a diverse group of regulatory actors (local suppliers/producers, foreign buyers, the International Labor Organization, the national government, and activist networks), regulatory mechanisms (for operating, financing and monitoring safety inspections), and detailed standards or rules in order to ensure factory safety for garment workers. Moving beyond voluntary codes of conduct and “Do No Harm” policies, these MSIs introduced significant institutional changes in corporate responsibility. They included stronger sourcing policy, improved safety of factory premises, and public reporting of corporate compliance. Indeed, unlike traditional international standard-setting MSIs, the Accord’s terms were legally binding between brands and trade unions. This is the first time an MSI allowed legal enforcement of its provisions and obligations in a transnational labor regulatory setting. Although the terms of both programs have ended, these MSIs attempted to address the regulatory deficiencies created or overlooked by the national government and the supplier factories.

Yet, with continued evidence of a race to the bottom for wages and working conditions in supplier factories, brands offering cut-rate sourcing prices, and recent reports on the costs to the jobs, health and work entitlements of millions of laborers due to COVID-19-related supply contract cancellations, academic and policy debates are focusing on MSIs’ structural and functional effectiveness and the possibility of restructuring these to deliver social justice oriented results:

How could MSIs be more inclusive in their formation?
How could MSIs lead to long-lasting influence on corporate sourcing policies and improvement of work conditions and entitlements?

Although these issues appear separate, I argue that to properly address diverse compliance challenges in supply chains, there needs to be a coherent and connected restructuring of MSIs that both strengthens their participatory mechanisms and influences the transformation of our liberal market system’s dominant business model.

Greater participatory space

While some have argued that MSIs aggravated the post-World War II labor disempowerment process by excluding true representation of labor in their governance, the aforementioned initiatives created participatory governance models in supply chain businesses. Both insisted on unionization and greater participatory space for laborers in supplier factories, promoted strong labor standards in their monitoring processes, or influenced the corporate codes of participating brands. Yet, after years of MSI involvement, shadow unions that are constantly under threat and have slim worker representation are still the norm in garment supply industries. The sourcing brands (some of which are participants in these initiatives) provoke the continuance of these anti-union practices and lack of respect for associational rights through their search for lowest-cost producers/suppliers. Additionally, by relying on ineffective audits and failing to take corrective action when clear violations are detected, some brands incentivize further violations.

More surprisingly, these initiatives precluded any form of collective strategic response from laborers, failing to provide enough space for discussion or information-sharing between different labor representatives working with different suppliers. To make it more complex, in supply chain businesses it is difficult to ensure compliance at the supplier level unless managers of factories formally adopt these standards in their internal management. Therefore, any effort to redesign/rethink the MSI model should incorporate plans for A) effective factory-level unionization; and B) creating more space within the MSI model for laborers to connect themselves with others working with different suppliers and to challenge the initiatives’ governance arrangements that affect them.

Better business model

Although greater participatory space helps to generate collective demands for appropriate labor rights and ultimately leads to institutional strengthening, meaningful and long-term structural change that benefits laborers needs to focus on the possibility of transforming the existing model of doing business. The underlying connection between these issues is obvious: realization of the one depends on the other. For example, if sourcing brands are allowed to shut down production firms abruptly, unilaterally terminate supplier relationships, or source from lowest-cost producers/suppliers, then what would prevent producer/supplier companies from searching for less regulated markets and “better” deals? If the buyer-dictated supply contracts continue to put downward price pressure on the suppliers, what would prevent the suppliers from minimizing or falsifying their social compliance efforts? My own data-based research showed that elaborate safety and social compliance demands from brands, declining sourcing prices, and increase of garment laborers’ wages in Bangladesh are seriously affecting or undermining factory managers’ social compliance willingness and capacity.

Therefore, only by connecting the fairness in supplier relationships with a model of employment where labor has ownership and/or greater participatory space, would it be possible to create the potential to support and sustain labor rights for a longer period of time. In other words, MSIs regulating supply chains need to focus on transitioning towards a better business model (by participating brands of MSIs) and a better employment model (at producer/supplier companies). I present here some relevant ideas:

Fairness in supplier relationships should be maintained both at the time of negotiation of the supply contract and during and after the supply process. While a steady supplier relationship, minimum benchmark of labor rights, and participatory, transparent sourcing and pricing policies would positively impact factory level wages, work conditions, and entitlements, a similar effort is necessary for the post-supply monitoring phase. Reportedly, rather than conducting rigorous assessments, sourcing brands often rely on simple box-checking and calculating how much money was spent on monitoring to prepare social audits or sustainability reports on the social, economic, and environmental impacts of corporate operation. Such ineffective, non-transparent audits exacerbate the sourcing challenges that result from the asymmetric power of brands over suppliers. In its place, independent post-supply monitoring should include a formal process for mapping and reaching out to the suppliers and receiving feedback on sourcing policies, the nature of the business relationship, and barriers to social compliance. For example, it might be useful for audits to analyze whether and how sourcing prices incentivize standards compliance. Some of the expenses incurred to conduct these reputation-focuses sustainability reports or social audits would be better used to undertake these alternatives.
With deep power imbalances between capital and labor, it is time to rethink how the participating stakeholders at MSIs could influence the existing business model at the producer/supplier level. While corporate structures until now have focused mainly on increasing shareholder value, an important discussion point is the ownership of companies by laborers in different forms: laborers having a share in capital, profit-sharing, and finally, a voice in decision-making. These alternative employment models, such as cooperatives and ESOPs, mostly operate to benefit direct employees of corporations and not all workers in the supply chain. In order to replicate these models in the factories of supply chains, some crucial questions need further research: if supplier companies can avoid unionization by forming shadow unions or by maintaining two different books relating to wages, work conditions, and indirect sourcing policies, how could it be ensured that corporate structures actually accommodate meaningful representation of laborers? If the export-focused national policies continue to prefer underfunded labor ministries and to sideline enforcement of codified labor laws, how could the worker representation/ownership MSIs insist on actually be implemented at the supplier companies?

Although there is no quick-fix solution, only with a collective effort that connects the brands’ (participating in the MSIs) and factories’ business and employment models and participatory strategies would it be possible to boost social compliance prospects in labor-intensive supply industries. Despite significant limitations, if the safety initiatives could introduce the concept of safety, i.e. the workers’ right to refuse unsafe work or to work in dangerous conditions, and engage powerful brands in accepting joint, mandatory responsibility in financing and overseeing factory inspections, there is ample space for future MSIs to utilize positive sourcing influences as a means to redesign the existing ways of doing business.

Zobaida Khan advises on the research projects at Chicago-based Corporate Accountability Lab (CAL). At CAL, she designed an independent research programme that focused on designing a worker-focused corporate responsibility framework from the perspective of the lessons from Bangladesh’s garment sector. She completed her doctoral studies in law from McGill University, Canada. Her research interests are international trade, sustainable development, and transnational labour law and policy. She has published in leading journals and wrote policy papers.

This is the eighth contribution in a joint blog series by the International Human Rights Clinic and MSI Integrity. The series will critically examine the role and value of MSIs in business and human rights; it coincides with a new report, Not Fit-For-Purpose, which compiles experience and insights over the last decade and explores cross-cutting trends and lessons learned about MSIs, as a field, from a human rights perspective. Read other blogs in the series here.

Rethinking MSIs: Time to Bury MSIs?—Not so Fast

by Bennett Freeman

MSI Integrity’s Not Fit-For-Purpose report is the culmination of a decade of examination of 40 standard-setting multi-stakeholder initiatives (MSIs) focused on corporate accountability and human rights. Its release in July 2020, coincidentally but significantly, comes amid the epic disruption of a global pandemic and a historic movement for racial equality. Both COVID-19 and Black Lives Matter have separately and together exposed (literally) fatal weaknesses of national and global governance; both have challenged governments and businesses to confront inequality and injustice. At a time when corporate accountability and government responsibility are under critical scrutiny, it is useful to revisit what Not-Fit-for Purpose calls “the grand experiment of multi-stakeholder initiatives.”

Despite what the report argues, however, I believe that it is premature to declare MSIs no longer “fit-for-purpose.” We must be clear that the “grand experiment” was indeed bold but not quite so grand. The aim was to supplement, and not supplant, the role of governments where governments could not, or would not, act to protect human rights connected to corporate misconduct. It was an essential start, a beginning but not an end that would be complemented and reinforced by law and regulation when possible. We must not only revisit but revitalize MSIs at a time when, ironically, multi-stakeholder governance models are setting standards across the policy arena beyond the human rights field where they first gained significant influence.

The number and type of MSIs across issues, industries and regions—and their different forms and missions—make it difficult to make broad generalizations that address them all. But I offer a perspective based on my work over the last two decades with four flagship MSIs: as the leader of the process that produced the Voluntary Principles on Security and Human Rights (VPSHR); as a co-founder and longtime board member of the Global Network Initiative (GNI); and as an early board member of the Fair Labor Association (FLA) and the Extractive Industries Transparency Initiative (EITI).

Each of these MSIs was an imperfect response to issues that seemed intractable in the late 1990s and early 2000s. None of these MSIs were envisioned to be more than an initial baseline from which to hold companies accountable. Each was an innovative approach that stretched what was then considered possible. None attempted to achieve the ideal. Each convened varying configurations of stakeholders—most of which had never met let alone together—to listen and learn, to build trust and forge consensus sufficient to establish standards and processes for corporate conduct that would partly fill governance gaps. None aimed to replace governments or to represent civil society beyond the NGOs dedicated to their cause. Each emanated from Global North country initiatives to address the conduct of multinational corporations mostly in Global South countries—with inadequate participation of Global South civil society and human rights in their founding and initial development. None doubted that progress would be made mostly by the persistent struggles of civil society and local communities, workers and trade unions, human rights defenders and rights holders around the world.

Each of these MSIs had significant, ambitious but clearly defined, limited purposes (in chronological order of their founding): the FLA to improve workers’ rights in global apparel and (later) agricultural supply chains; the VPSHR to ensure human rights safeguards for oil and mining company security arrangements with military, police and private providers in conflict zones and in proximity to local indigenous communities; EITI to empower civil society to hold extractive companies and host country governments accountable for the transparent use of oil, gas and mineral resources; GNI to ensure transparent respect for freedom of expression and the right to privacy for internet users in the face of government censorship and surveillance demands. All have brought together companies and NGOs—together with investors through EITI and GNI as well as academic experts through GNI—to demonstrate corporate accountability but also when necessary to mitigate human rights abuses (and corruption in the case of EITI) which governments perpetuate or fail to prevent.

Each of these MSIs strengthen corporate accountability—and fill gaps in government responsibility—through their standards and processes as well as their multi-stakeholder engagement. The FLA’s Code, Principles and Benchmarks promote freedom of association and collective bargaining while the initiative overall works to diminish forced labor and child labor, amplify worker voices and enhance access to remedy across those supply chains—all in the face of weak enforcement of labor laws by many governments. The VPSHR attempts to protect rights, safeguard communities and save lives in those conflict zones as well as in indigenous and other local communities—and to improve the conduct of host country governments and security forces. The EITI Standard requires companies and governments alike to disclose revenue payments delivered and received—in order to diminish corruption and enhance governance of natural resources in some countries. The GNI Principles and Implementation Guidelines support expression and privacy online in response to government demands—and make clear to governments the lines that its participating companies will not cross or at least not without transparency with their users.

All four have fallen well short of perfect consistency. It is challenging to demonstrate direct positive impact or even correlation between commitments and outcomes—especially to demonstrate rights not violated (or lives saved) even more than rights respected and protected. But these MSIs have highly developed accountability mechanisms that compel signatory companies (plus governments in the case of EITI) to demonstrate their implementation efforts to their constituent stakeholder representatives—including human rights NGOs and other civil society organizations—in order to determine compliance.

In my view, the efficacy and credibility of each of these MSIs have been undermined to varying extents by flaws in their original conception and subsequent evolution: the FLA by the lack of participation by trade unions in its governance and on its board; the VPSHR by inadequate external transparency and accountability; EITI by periodic harassment by governments of civil society anti-corruption activists working inside or alongside its multi-stakeholder groups within countries; GNI by the perception that it promotes freedom of expression and the right to privacy online generally when its principles, implementation guidelines and assessment process focus significantly but exclusively on company responses to government censorship and surveillance demands and not on other related freedom of expression issues such as content moderation and privacy issues arising from company use of customer data.

These four MSIs (and others) should closely examine the key findings and observations and the six cross-cutting insights put forward by Not Fit-for-Purpose. I believe that the original goals of these four MSIs are as important and urgent as ever. But each must be self-critical enough to confront their weaknesses, as well as self-confident enough to consolidate their strengths. They must be more transparent and accountable as the wave of mandatory disclosure of human rights due diligence approaches and as human rights benchmarking initiatives gain even greater traction. They must become more inclusive of Global South civil society and companies alike. And even as they remain primarily focused on avoiding and mitigating corporate misconduct, they must challenge companies’ home and host country governments alike to protect human rights and labor rights, human rights defenders and civil society activists. It was encouraging that GNI made a May 2020 public statement opposing network disruptions during the Covid-19 pandemic and to oppose shutdowns in Belarus, India and Ethiopia in recent months. Also encouraging was a July 2020 joint statement from VPSHR corporate and NGO members urging respect for human rights “following weeks of demonstrations around the world condemning police brutality and systemic racism present in public security institutions.”

Beginning two decades ago, MSIs became cornerstones of the new global architecture to protect human rights and worker rights alongside trade unions, NGOs and local communities. A decade ago that structure found its floor—not its ceiling—in the UN Guiding Principles on Business and Human Rights. While companies must protect and promote as well as respect human rights, greater pressure must be also placed on states—both home and host country governments of multinationals and their supply chain partners—to protect human rights. We need to use every tool: legislation and regulation; litigation and non-judicial remedy; civil society activism and corporate advocacy; trade unions and Worker-driven Social Responsibility initiatives; pressure from responsible investors and financial institutions. MSIs can become fitter-for-purpose if both their attributes and limitations are more clearly understood and appreciated.

Bennett Freeman led the development of the Voluntary Principles on Security and Human Rights (VPSHR) and served on the board of the Fair Labor Association (FLA), both as U.S. Deputy Assistant Secretary of State for Democracy, Human Rights and Labor in 1999-2000. He served on the first board of the Extractive Industries Transparency Initiative (EITI) from 2006-09, representing Oxfam while also serving on the board of Oxfam America. As Senior Vice President of Calvert Investments, he co-founded the Global Network Initiative (GNI) in 2006-08 and served as Board Secretary from 2010-20.

This is the seventh contribution in a joint blog series by the International Human Rights Clinic and MSI Integrity. The series will critically examine the role and value of MSIs in business and human rights; it coincides with a new report, Not Fit-For-Purpose, which compiles experience and insights over the last decade and explores cross-cutting trends and lessons learned about MSIs, as a field, from a human rights perspective. Read other blogs in the series here.

Rethinking MSIs: MSIs and the Search to Cure the Global Governance Gap

by Judy Gearhart

The phenomenon of multi-stakeholder initiatives (MSIs) has spread rapidly across the globe since the 1990s, with governments and multinational corporations (MNCs) alike promoting them as the new solution to the global governance gap even before they were fully road-tested. Civil society organizations (CSOs) saw them as a way to engage MNCs on the environmental and social problems exacerbated by global trade. MNCs saw a means to inoculate their global reputations from the risks of doing business in places where human rights scandals were greater than at home. Just as MNC staff required vaccines against tropical diseases before departing, the corporation needed to guard against the risk of coming into contact with the plagues of corrupt governments and abusive employers.

Yet MSIs, at least those focused on the impact of global supply chains, were only set up to address the symptoms, not the cause of these plagues. Most failed to recognize how MNCs were actually fueling corruption and employer abuse by constantly demanding lower prices and faster production times. Thus, the global governance gap grew wider as MNCs diversified their supply chains and effectively played one producer country against the other. When the scandals multiplied and children were found making clothing for Wal-Mart in Honduras or soccer balls for adidas and Nike in Pakistan, global brands sought help from MSIs.

The majority of MSIs are set up as public charities and their goals express the intent to protect a public good. This includes MSIs working with public sector institutions to improve accountability such as the Extractive Industries Transparency Initiative (EITI), those covering workers’ rights such as Social Accountability International or the Fair Labor Association, and environmentally focused groups such as Rainforest Alliance and Marine Stewardship Council. What nearly all of them have in common is a mission to address a lack of regulation or the weak legal protections of national resources, the environment, or workers. Yet MSIs focused on supply-chain monitoring—as distinct from MSIs engaging the public sector—have been largely silent or disengaged on advocacy for legal reforms and rule of law, often turning a blind eye as member MNCs’ suppliers pursue multi-year legal battles against whistle-blowers or worker organizers.

The recently released MSI Integrity report, Not Fit for Purpose, tracks the uptake of MSIs as a reference point for addressing gaps in global governance. MSI Integrity cites how the UN Guiding Principles (UNGPs) on Business and Human Rights extended legitimacy to MSIs by directly referencing them, and the 23 countries that have referred to MSIs in their National Action Plans for implementing the UNGPs. Yet most MSIs are a weak stopgap for failing legal protections. They are also poor exemplars of good governance given the extent to which they have eschewed the key elements of transparency, accountability, and participation.

Not Fit for Purpose could have distinguished more among distinct MSI approaches, e.g. supply-chain versus public governance-focused MSIs, and those treating symptoms through risk mitigation among suppliers versus Fairtrade’s work to gain more direct market access for small farmers. The report is very helpful though, especially in identifying patterns and quantifying how the majority of MSIs fall short on models of good governance:

Transparency: Less than one-third (as of July 20, 2019) of MSIs reviewed published monitoring reports and suspension decisions.
Accountability: 25% of those reviewed do not publicly prohibit a conflict of interest in grievance handling and only four in forty provide a complete list of complaints, their status, and outcomes.
Participation: Only 13% of MSIs include affected populations in their governing bodies, and none have a majority of rights holders on their boards.

Given the extent to which they have become embedded in multilateral and government efforts, MSIs may be around for a long time. So it’s worth calling out reforms needed. MSIs should be seen as a first-wave experiment in partially addressing the global governance gap. To see them as a cure, however, is to lose sight of the need to advance legal reforms and address the ways MNCs continue to create the very problems the supply-chain MSIs purport to fix.

Potentially the greatest contribution of MSIs has been to get MNCs to acknowledge they needed to address the problems in their supply chains and to reveal (through multiple failures) how ineffective voluntary compliance programs are. Also, the idea that solutions to intractable problems are more effective when crafted by people with diverse perspectives is still generally a good one—provided everyone has an equal voice.

Few rights holders have a seat at the table, however, because most MSIs are global in scope and they use CSOs as stand-in stakeholders. This is the fundamental flaw of MSIs: powerful actors are engaged in their design without ever being asked to cede any power, sit down with those affected, or submit to legal requirements. Rather than serve to improve rule of law and good governance, MSIs establish internal grievance systems that rarely include a wholly independent, external review, and remediation is decided under cover of confidentiality agreements. The result is the workers or communities the MSI aims to protect are marginalized from problem-solving and unable to build power.

MSIs’ failure to address the power imbalance between rights holders and MNCs has fueled growing demands for Worker-driven Social Responsibility (WSR) or enforceable brand agreements (EBAs)—models that are in effect new forms of collective bargaining designed to negotiate a contractual agreement between global brands and workers in their supply chain. These agreements have demonstrated an almost immediate positive impact, improving factory safety in the case of the Accord for Fire and Building Safety in Bangladesh or wages in the case of the Coalition for Immokalee Workers, and dramatically improved access to remedy and effective grievance handling for the workers covered by them. Although they include MNCs and workers’ organizations, these programs should not be confused with the MSIs discussed above. These are programs based on a binding agreement that was negotiated, much in the way collective bargaining agreements are negotiated. They are designed to address problems, secure benefits, and implement solutions identified by and developed with workers. Although these programs cannot replace the need for legally protected trade union representation, they are profoundly different from MSIs. Supply-chain MSIs work with MNCs to develop scalable, global supply-chain coverage—a design approach that makes meaningful participation by workers and other rights holders virtually impossible.

This raises the question as to how WSR or EBAs can scale up and benefit more people, while still ensuring the affected people are at the center of the solution. Driving to a global scale does not need to be the main goal, however, because the impact of these programs goes beyond workers directly benefiting to advance the pillars of good governance. First, they ensure there is a ground game; rights holders are able to join together to advance their views and are supported by basic legal protections for trade union organizers and other civil society freedoms. Second, they focus on rights holders’ access to legal remedy, both locally so that rights holders can speak out without fear of being sued and contractually so that MNCs don’t walk away at the first sign of a challenge. Third, there needs to be transparency so that participating MNCs are recognized for their commitment and their impacts are shared widely, including with local authorities, so they can be used to help set new standards of practice for other rights holders seeking remedy.

In short, if we are going to close the global governance gap, we need to support initiatives that advance effective legal remedies and models of good governance. Anything less is a distraction, like a painkiller that works by numbing your senses rather than alleviating the pain. The global governance gap needs a cure that addresses the root cause of the problem.

Judy Gearhart is a visiting scholar at the Accountability Research Center at American University and an adjunct professor at Columbia University. Previously she served nine years as the executive director at the International Labor Rights Forum and twelve as the programs director at Social Accountability International.

This is the sixth contribution in a joint blog series by the International Human Rights Clinic and MSI Integrity. The series will critically examine the role and value of MSIs in business and human rights; it coincides with a new report, Not Fit-For-Purpose, which compiles experience and insights over the last decade and explores cross-cutting trends and lessons learned about MSIs, as a field, from a human rights perspective. Read other blogs in the series here.

Austin Hwang: Reflections on My Time at MSI Integrity

I joined MSI Integrity at a crossroads in the organization’s history. As I was starting my internship in June this year, it was wrapping up a massive study which ultimately concluded that multi-stakeholder initiatives (the “MSI” in MSI Integrity) were ineffective at keeping corporations accountable to rights holders and communities affected by their decisions. The study revealed that corporate capture of these MSIs created an unresolvable conflict of interest, and as a result, MSI Integrity chose to pursue other methods of achieving corporate accountability rather than try to spin its wheels repairing a broken system.

Consequently, I joined an organization which was in the process of pivoting from one project to another. It was immediately apparent, however, that the organization’s focus on restraining corporate power was unchanged. My role in this mission was to perform research on multiple forms of “equitable entities,” which can be defined as alternative corporate forms that are answerable to stakeholders other than executives and their investors. In this blog post, I will summarize my findings, as well as offer other reflections on this process.

My first day of conducting research, I experienced what can be aptly described as a rollercoaster of emotions. First, I felt wild excitement when learning about more equitable types of companies. Corporate forms that placed increased emphasis on issues such as the environment or the well-being of laborers signified that companies and consumers alike had an appetite for a more ethical method of doing business. Digging a little deeper, I began to feel doubt that such a desire would lead to substantive change in society. I stumbled upon countless opinion pieces and law and business review articles describing the myriad institutional barriers, such as competitive disadvantage and corporate capture, to establishing an equitable entity. Taking this into consideration, I decided to rate the equitable entities I researched by two metrics: potential for social change, and likelihood of mass adoption.

Regarding the first category, I analyzed law review articles and created a subjective ranking on how external stakeholders and labor groups would benefit from mass adoption. In the top category, I found the most effective entities to be worker cooperatives and Employee Stock Ownership Plans (ESOPs), which effectively transfer ownership to laborers and employees. Professors at the Wharton School of the University of Pennsylvania have conducted studies finding that employee-owned businesses actually perform better than non-employee owned businesses due to increased employee participation and worker influence. In the middle, I found that the German codetermination model, which placed labor representatives on the boards of companies and in managerial positions, had similar benefits to ESOPs and worker cooperatives. Last, benefit corporations and B-Corps were the least effective at creating social change, due to the relatively small commitment to change in corporate structure. This ranking category has an inverse relationship with the second category, likelihood of mass adoption. The reasoning is simple: the most radical ideas would be met with the most radical resistance. For this reason, a political compromise may carry the day. That compromise would be codetermination, which is picking up steam as an augmentation to corporate capitalism, rather than a complete reformation.

Chief among the institutional barriers I discussed above is America’s confrontational history between labor and corporations. Many authors point to the difference between America and Germany’s labor relations system as a structural roadblock to American codetermination. One of these differences is that American collective bargaining takes place at the company level, whereas European collective bargaining is strongest at a national union level. Additional roadblocks include vehement managerial opposition and negative union attitudes towards worker participation in company management. However, current American politicians have extracted ideas from codetermination and have introduced legislation seeking to integrate the labor force into corporate boards. This legislation, introduced by Senator Elizabeth Warren, would require that employees elect 40% of a board of directors of any corporation with more than $1 billion in revenue. This idea has been embraced by many American academics, including political economist Dr. Susan R. Holmberg, who wrote that the passage of this legislation would not fix American capitalism’s problems overnight, but would help restore worker’s faith in corporations. It remains to be seen whether America will embrace such legislation, but the introduction of such legislation can be seen as a starting point from a business and human rights point of view.

During the course of this internship, I learned a lot about corporate accountability, I was able to focus on topics that truly interested me, and most importantly, I met some incredibly passionate people. My coworkers were not driven by factors such as shareholder primacy or profit maximization, but by seeking equitable change.

Austin Hwang was a 2020 Summer Fellow at MSI Integrity helping conduct research on alternative corporate governance and ownership models. Austin is currently a 2L at Harvard Law School, where he is interested in studying corporate law and the history of American Capitalism.

Rethinking MSIs: Be Wary of the Fox(es): A Power Analysis of MSIs

by Rebecca Tweedie and Tyler Giannini

The opening blog in this series laid out two different paths MSIs could have taken:

The allure [of MSIs] was (and still is) obvious. If we bring the right players together, they can learn from each other and solve the given problem by setting up a democratic institution that can prevent future abuses and sanction violators, and governments will not have to pass hard laws and unnecessary regulations. The potential flaws were (and remain) just as obvious—the power imbalances amongst the players are acute and asking industry to voluntarily give up power and self-regulate is a fool’s errand that puts the fox in charge of the chicken coop.

The differences between the institutions that emerge from the two paths may not be as obvious as one may think. The first path describes MSIs as democratic governing bodies where different stakeholders with adequate representation come to agreement on reasonable and effective standards, and these standards are upheld because the governed have bought into the system in exchange for representation, the reputational benefits of membership, and the sanction of competitors who do not play by the rules. The second path still includes a governing body with multiple stakeholders, but the representation is skewed to favor one party (repeatedly industry actors), the standards the institution creates are weak, or its sanctions are ineffective or rarely used. The institutions down each of these roads look quite similar at first glance because there is a “representative” governing body in both, but the second is far less democratic. In the end, the persistent power imbalances in the second have resulted in MSIs that allow corporate actors to call the shots and reap the reputational benefits of multi-stakeholderism.

In hindsight, the road to corporate capture was predictable. MSIs’ flaws were baked in from the outset, and it comes down to power—the relative power of the different stakeholders and the power embedded in the MSIs as institutions themselves. MSIs were created without mechanisms to ensure meaningful power sharing or restraint of the outsized power of industry, all but ensuring that MSIs would not fulfill their promise to prevent and remedy human rights abuses and hold corporations to account.

It is easier to analyze them now, having watched these power dynamics play out over the years, and to think about how and why the fox has gained the upper hand. The experience with corporate capture and the inability to constrain corporate power can be compared to other democratic endeavors. For example, the trajectory of MSIs resembles that of failed democratic governments. In How Democracies Die by Steven Levitsky and Daniel Ziblatt, the authors examine how democratic regimes give way to autocracies and authoritarianism. In other words, when power concentrates in the hands of one or a few. They are particularly concerned with the “electoral road” to authoritarianism, which occurs when elected individuals undermine democracy through engaging in what appear to be legitimate legal processes. These processes can be “dangerously deceptive” as they are not a classic coup d’etat and are often cloaked in calls to “improve” the system. There is “no single moment” that “crosses the line” when the system is captured; instead, a “veneer” of democracy often remains while governance actually erodes in a way that is “almost imperceptible.” Unfortunately, this story has some eerily familiar warning signs for the field of MSIs. The electoral road to authoritarianism is one where a would-be autocrat comes to power through legitimate means, often with the aid of institutional elites who choose to overlook their autocratic tendencies, or believe the autocrat can be controlled by working with them. Once in charge, the autocrat is either checked by robust democratic norms, or they consolidate power, “rewriting the rules of politics to tilt the playing field against their opponents. The tragic paradox of the electoral route to authoritarianism is that democracy’s assassins use the very institutions of democracy—gradually, subtly, and even legally—to kill it.” (See How Democracies Die at 5–8.)

What is the parallel here? We can imagine this sentence: “The tragic paradox of MSIs is that human rights’ assassins use the very institutions of human rights—gradually, subtly, and even legally—to kill them.” Instead of a politician with authoritarian tendencies, we have corporations, often with dubious human rights records who are invited to participate in standard-setting bodies and accountability mechanisms. The theory goes that to be effective MSIs require broad buy-in from industry, giving other stakeholders reason to include these bad actors. But the experience of MSIs indicates that once at the table, industry can and does use the institution to push for weaker standards and then evade compliance with human rights. Without sufficient power to control industry, the institutions end up serving corporate interests.

The fox guarding the chicken coop analogy also helps us better understand why corporate capture is so predictable. As Levitsky and Ziblatt point out, established democracies have guardrails strong enough to reign in powerful threats. The ability for MSIs to weather bad actors is more in doubt than that of democracies, however. Many MSIs were born out of human rights crises, during which perpetrators of human rights abuses—certain brands and at times entire industries—were invited to participate in the creation of these new institutions. If there already were a coop and you invited the fox to guard it, we’d worry. But the case of MSIs is even more troubling: here, the foxes were not just invited to guard the coop, but they were invited to design and build it.

As a description of the power dynamics of many MSIs, the fox analogy suggests that MSIs may not only fail to be rights holder-centric; they may not even be rights-centric. The right to remedy is an established human right, but as MSI Integrity’s report, Not Fit-For-Purpose, makes clear, they have not been successful in providing remedies for harms. If these institutions do not uphold such fundamental rights like that to a remedy, then the power wielded by industry in MSIs may have undermined human rights in a more profound way than solely through the exclusion of rights holders. They may truly be institutions by and for corporations rather than human rights institutions.

Is this path of corporate capture inevitable? No, but preventing severe forms of corporate capture require some major adjustments to the power structures in this regulatory space—from mindset shifts to better gatekeeping of those with poor human rights records, to placing primary decision-making power in the hands of non-corporates.

Let’s play with the fox analogy a bit more. We see three alternative paths for building institutions that create better human rights outcomes.

First, the foxes become vegetarian.

Second, the farmer does its job.

Third, the chickens are in charge.

Vegetarian Foxes

This requires a clear and major mindset shift. There would need to be a change in culture—where the new generation of foxes are vegetarian. This is a normative shift away from the sole primacy of profit-maximization to a more human-centered capitalism. There is a need for a human-centered capitalism that mitigates the worst dimensions of the foxes and the structural issues that come with foxes dominating leadership and decision-making.

But asking foxes to become vegetarian is no small order. And even if they did for a while, could you trust them not to relapse? Indeed, no matter what one thinks of capitalism, it has at least some predatory elements. Even the most well-meaning vegetarian fox is going to be hard-pressed to survive out there in the wild when all its competition is eating meat. Such a fundamental change in mindset would need to be supported by new laws and policies that prevent the breakdown of voluntary shifts away from profit-maximization.

It may be more realistic to strive to get rid of rabid foxes. In this variation on option one, unless the group of foxes is willing to isolate and control its worst offenders based on fundamental human rights, no governing institution is likely to make it as an effective human rights body. Levitsky and Zablatt argue that one of the most important roles in a functioning democracy is the gatekeeping function of political parties. The gatekeepers in our MSI analogy are the industry bloc (the group of foxes). They must step up and embrace the need for remedies, for example, if the regulating institution is to be called a human rights institution.

The Farmer Steps Up

This, simply put, is government oversight. A more powerful player oversees and punishes bad actors and makes sure the system is sustainable and equitable. But it is hard to rely on government oversight in this realm of voluntary initiatives, especially as MSIs most often have been set up because the government has not been willing or able to act. The power imbalances at work in MSIs, however, highlight the need for government involvement and the dangers of abdicating such oversight to private governance.

Community Governance

The rise of worker-driven social responsibility and other models designed by rights holders and affected communities demonstrates the potential of private governance when there is a real shift in power among the stakeholders. The limits of the fox analogy are most acute here, as the helplessness of chickens does not connote the strength and agency of workers and communities, and the advantages they have in designing governing institutions that best fit the industry and the rights—their rights—that are at stake. The success of worker-driven consortiums makes this abundantly clear. Especially in the absence of government oversight, these models—where the fox does not build nor guard the coop—offer the most long-term promise for human rights protection.

We know that MSIs may not be perceived as authoritarian or undemocratic, and that many of our colleagues contest the extent of corporate capture in the field. For us, however, this is what makes authoritarianism a good analogue. The power that industry wields in MSIs can be subtle and seem reasonable. And yet, or precisely because of these qualities, there are few effective tools with which to check it. Indeed, it is this insidiousness that makes us wary of the fox.

Rebecca Tweedie, Harvard Law School JD’21, is a former intern at MSI Integrity.

Tyler Giannini is the board treasurer and co-founder of MSI Integrity. He is a Clinical Professor of Law and directs the Human Rights Program and International Human Rights Clinic at Harvard Law School.

This is the fifth contribution in a joint blog series by the International Human Rights Clinic and MSI Integrity. The series will critically examine the role and value of MSIs in business and human rights; it coincides with a new report, Not Fit-For-Purpose, which compiles experience and insights over the last decade and explores cross-cutting trends and lessons learned about MSIs, as a field, from a human rights perspective. Read other blogs in the series here.