Towards a Typology of Corporate Responsibility in Different Governance Contexts

TL;DR: In this paper, the authors developed a typology of different country governance contexts, in which they proposed four broad categories of countries in Sub-Saharan Africa and analyzed the most appropriate methods for helping to create a climate that is receptive to fostering corporate accountability.

Abstract: This paper develops a typology of different country governance contexts, in which we propose four broad categories of countries in Sub-Saharan Africa Our analysis measures the most appropriate methods for helping to create a climate that is receptive to fostering corporate accountability Our criteria are based on several different factors, none of which is determinative: the natural resources of the country; the country's dependence on one commodity; the corruption level; the stability and accountability of the government; the state of civil society; and the existence of ongoing conflict Examining these factors together results in measuring not just the country's receptivity to change, but also the means for producing change At one end of the spectrum, what we label Category 0 countries, are nations with economies and governments that are so poorly managed that there is little multinational investment - sometimes even in the context of lucrative investment opportunities At the other end lie those countries with acceptable levels of good governance, more developed economies and markets, and with, consequently, a comparatively high level of both domestic and multinational corporate investment We examine the appropriateness of strategies to apply external or internal pressure in different types of countries Next, we discuss the affects of applying the proposed intervention strategies to the countries, addressing both short and long-term expected results We find that in Category 0 countries, with extremely low levels of international investment, strategies should focus on improving governance and overall human welfare, which often could lead to welcoming international corporate investment Other categories of countries, with greater - and often problematic - international corporate involvement, require different types of approaches

Summary

Introduction

• The country governance context is critical in deciding on appropriate strategies to improve corporate responsibility.
• This paper develops a typology of different governance contexts, in which the authors propose four broad categories of countries in Sub-Saharan Africa.
• At one end of the spectrum are countries with economies and governments that are so poorly managed that there is little multinational investment -sometimes even in the context of lucrative investment opportunities.
• Next, the authors discuss the affects of applying the proposed intervention strategies to the countries, addressing both short and long-term expected results.
• The first category of countries, which includes the Democratic Republic of the Congo, Liberia, and Sierra Leone, is, in the context of this topic, the least well understood; therefore, the paper discusses in greater detail the case of one of these, the Democratic Republic of the Congo (hereafter "DRC").

Typology

• Various entities have developed different means for measuring a country's growth and eligibility for investment.
• Instead, the authors are examining the most appropriate methods for helping to create a climate that is receptive to fostering corporate accountability, a complex analysis that includes legal, social, economic, and political variables.
• In these countries, country governance is much improved and orders of magnitude better than in Category 0 countries, economies are diversified, and levels of foreign investment are already reasonably high.
• On the other hand, outside of a few countries where extractive industries provide such great rewards that they justify the risks (as seen in many category 1 countries), widespread corruption and inefficient government serve as a disincentive to foreign -9 -investment.
• 29 New research shows that good governance results in improved development, but that increasing incomes does not, by itself, result in good governance.

Strategies

• Broadly, there are two sets of interrelated strategies that can be used to change the investment climates to improve governance and improve the climate for international investment.
• Second, corporations have adopted voluntary codes of responsibility.
• Marshalling sophisticated strategies to link outside and inside actors to improve governance is a critically needed intervention, particularly in Category 0 countries.
• In another recent report on the mineral trade in copper and cobalt in the DRC, Global Witness documents the conditions under which these minerals are collected in the southernmost region of the Congo amid widespread corruption and mismanagement.
• The fund would help countries lay the foundations of democracy by instituting the rule of law and independent courts, a free press, political parties and trade unions.

Category 1

• For Category 1 countries, effective tools have been developed by multilateral institutions, corporations themselves, other governments with important relations with Category 1 countries, and international nongovernmental organizations to pressure both the governments and the corporations themselves to act more responsibly.
• 64 There is, of course, a perceived, and often real, conflict of interest between the objectives of multinationals, their host and home governments, the multilaterals, the communities, and the NGOs.
• Unlike Category 0 countries, where the authors believe combined local and international strategies must be intertwined to gain improvements in basic country governance, in Category 1 and beyond a variety of more loosely linked strategies, including work to improve corporate governance, can be effectively employed.
• This is not to overlook the role that such institutions play in countries with effective governments and low rates of corruption; however, there is literature addressing these issues already.
• Both external and internal pressure on corporations doing business in these countries is likely to result in the adoption of voluntary codes of conduct.

Long-term Strategies

• There are certain things that can be done relatively quickly, such as what Michael Brown and his colleagues from Innovative Resources Management describe in their paper discussing the DRC, 68 in a Category 0 country.
• Perhaps the most essential actions are those to improve education, increase literacy rates, and develop an adequately-paid and trained, appropriately-sized civil service sector.
• A literate population will not only provide pressure for increased democratization, by enhancing people's skills, it better equips them to choose among a much greater range of employment possibilities.
• After the survey information was disseminated publicly, the government instituted a series of reforms, including publishing the monthly grants to each primary school in newspapers for all to see and posting school grants awards on the school wall.
• 74 Although corruption in law-making is significant in preventing change in a country's governance structure and in maintaining the dominance of the existing elite, bribing government officials to obtain precious government access is the largest area of corruption in developing countries.

Conclusion

• But actions to improve corporate responsibility are poorly targeted when focused on Category 0 countries.
• The proposed typology leads us to suggest that Category 0 countries require a radically different approach than those in Category 1.
• People interested in more justice and improvements in human well-being through improved corporate governance, should focus on the approaches discussed above in Category 0 countries.
• When successful, these approaches will lead to greater involvement of international business, which should be a positive development, under the scenario outlined in this paper.
• Category 1 countries seem the most ripe for targeted efforts by international actors to obtain improvements in local conditions through enhanced multinational corporate responsibility.

Full text

GW Law Faculty Publications & Other Works Faculty Scholarship
2004
Towards a Typology of Corporate Responsibility in Different Towards a Typology of Corporate Responsibility in Different
Governance Contexts Governance Contexts
Naomi R. Cahn
George Washington University Law School
, ncahn@law.gwu.edu
Anthony Gambino
Follow this and additional works at: https://scholarship.law.gwu.edu/faculty_publications
Part of the Law Commons
Recommended Citation Recommended Citation
Cahn, Naomi R. and Gambino, Anthony, "Towards a Typology of Corporate Responsibility in Different
Governance Contexts" (2004).
GW Law Faculty Publications & Other Works
. 358.
https://scholarship.law.gwu.edu/faculty_publications/358
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Draft: 12/15/04
Towards a Typology of Corporate Responsibility in
Different Governance Contexts
Anthony Gambino and Naomi Cahn
1
Abstract
This paper develops a typology of different country governance contexts, in
which we propose four broad categories of countries in Sub-Saharan Africa. Our analysis
measures the most appropriate methods for helping to create a climate that is receptive to
fostering corporate accountability. Our criteria are based on several different factors,
none of which is determinative: the natural resources of the country; the country’s
dependence on one commodity; the corruption level; the stability and accountability of
the government; the state of civil society; and the existence of ongoing conflict.
Examining these factors together results in measuring not just the country’s receptivity to
change, but also the means for producing change.
At one end of the spectrum, what we label “Category 0” countries, are nations
with economies and governments that are so poorly managed that there is little
multinational investment – sometimes even in the context of lucrative investment
opportunities. At the other end lie those countries with acceptable levels of good
governance, more developed economies and markets, and with, consequently, a
comparatively high level of both domestic and multinational corporate investment. We
1
Tony Gambino was the Mission Director for the United States Agency for International Development in
Kinshasa, Democratic Republic of the Congo, from December 2001-July, 2004. Naomi Cahn is a professor
of law at George Washington University. This paper was presented at the Africa Project Conference of the
GW Institute of International Corporate Governance and Accountability, Oct. 29, 2004.

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examine the appropriateness of strategies to apply external or internal pressure in
different types of countries. Next, we discuss the affects of applying the proposed
intervention strategies to the countries, addressing both short and long-term expected
results. We find that in "Category 0" countries, with extremely low levels of
international investment, strategies should focus on improving governance and overall
human welfare, which often could lead to welcoming international corporate investment.
Other categories of countries, with greater -- and often problematic -- international
corporate involvement, require different types of approaches.
Introduction
The country governance context is critical in deciding on appropriate strategies to
improve corporate responsibility. This paper develops a typology of different governance
contexts, in which we propose four broad categories of countries in Sub-Saharan Africa.
At one end of the spectrum are countries with economies and governments that are so
poorly managed that there is little multinational investment – sometimes even in the
context of lucrative investment opportunities. At the other end lie those countries with
acceptable levels of good governance, more developed economies and markets, and with,
consequently, a comparatively high level of both domestic and multinational corporate
investment. We examine the appropriateness of strategies to apply external or internal
pressure in different types of countries. Next, we discuss the affects of applying the
proposed intervention strategies to the countries, addressing both short and long-term
expected results. The first category of countries, which includes the Democratic

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Republic of the Congo, Liberia, and Sierra Leone, is, in the context of this topic, the least
well understood; therefore, the paper discusses in greater detail the case of one of these,
the Democratic Republic of the Congo (hereafter “DRC”).
Typology
Various entities have developed different means for measuring a country’s growth and
eligibility for investment. The World Bank uses criteria to assess a country’s eligibility
for IDA (International Development Assistance) that focus on per capita income and
creditworthiness for borrowing from both commercial and multilateral institutions and
appropriate performance standards, such as macroeconomic stability and good
governance.
2
These criteria are weighed together; for example, a country with a lower per
capita income than the IDA cut-off may nonetheless be ineligible if it is able to secure
commercial and other multilateral loans.
3
Although the World Bank uses this
classification for eligibility for loans, grants, and special programs of debt relief, other
institutions also rely on these classifications.
4
In sub-Saharan Africa, there are 37
countries that qualify for IDA-status.
5
The World Economic Forum uses a growth competitiveness index based on the
quality of the macroeconomic environment, the state of the country’s public institutions,
2
International Development Association, IDA Eligibility, Terms, and Graduation Policies 1-4 (2001)
(avail. at http://siteresources.worldbank.org/IDA/Resources/Seminar%20PDFs/ida%20eligibility.pdf).
3
Id. at 4.
4
Todd Moss, et al., Double-Standards, Debt Treatment, and World Bank Country Classification: The
Case of Nigeria 2 (2004) (avail. at http://www.cgdev.org/Publications/index.cfm?PubID=147).
5
Id. at 3. Nigeria and Zimbabwe, which are not included in that number, are also IDA eligible, but they
occupy a special “blend” status.

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and the level of its technological readiness.
6
Finally, the United States recently
established the Millennium Challenge Account to provide development assistance to
countries with good governance practices. Among the 16 criteria for eligibility are civil
liberties, control of corruption, immunization rate, inflation rate, fiscal policy, and trade
policy.
7
Among the 16 countries deemed eligible in 2004 were the following sub-
Saharan Africa nations: Ghana, Lesotho, Madagascar, Mali, and Mozambique.
8
There
are additional measures that are more focused on governance, such as the World Bank
Institute’s Aggregate Governance Indicators Dataset, and on political and economic risk,
such as the International Country Risk Guide.
9
While these measures are useful for background information, in our analysis, we
are measuring a country’s suitability not just for the stability of economic investment nor
eligibility for development assistance. Instead, we are examining the most appropriate
methods for helping to create a climate that is receptive to fostering corporate
accountability, a complex analysis that includes legal, social, economic, and political
variables. Our criteria are based on several different factors, none of which is
determinative: the natural resources of the country; the country’s dependence on one
commodity; the corruption level; the stability and accountability of the government; the
state of civil society; and the existence of ongoing conflict. Examining these factors
together results in measuring not just the country’s receptivity to change, but also the
means for producing change.
6
World Economic Forum, Ernesto Hernandez-Cata, Exec. Summary, in Africa Competitiveness Report 1,
3 (2004), avail. at www.weforum.org/pdf/Glob.pdf
.
7
Millennium Challenge Corporation: Reducing Poverty Through Growth, avail. At
www.mca.gov/countries/selection/data/shtml.
8
Eligible Countries, avail. at http://www.mca.gov/countries/eligible/index.shtml.
9
Moss, supra note __, at 12.

Frequently asked questions

Q1. What have the authors contributed in "Towards a typology of corporate responsibility in different governance contexts" ?

This paper develops a typology of different country governance contexts, in which the authors propose four broad categories of countries in Sub-Saharan Africa. This paper was presented at the Africa Project Conference of the GW Institute of International Corporate Governance and Accountability, Oct. 29, 2004.