Outsourcing Corporate Accountability

Source: Kish Vinayagamoorthy, Washington & Lee Legal Studies Paper No. 2014-11, April 7, 2014

From the abstract:
This Article addresses the problem of preventing human rights violations abroad that result from the globalization of business. It specifically explores the challenge of promoting corporate social responsibility in global value chains. The modern business has changed dramatically and has “gone global” in order to court foreign markets and secure resources, including labor. Familiar household names, such as Nike and Apple, have “outsourced” many of their functions to suppliers overseas. As multinational buyers, they dominate one end of the global value chain. At the opposite end of the value chain are the local managers and owners of the factories and workhouses where tablets are assembled, running shoes are made, and gowns are sown. These facilities are often the sites of serious human rights violations, such as forced labor and child labor.

Some actors have attempted to rein in transnational corporate misconduct through litigation in domestic courts regarding the corporation’s actions abroad. However, after Kiobel v. Royal Dutch Petroleum, it is unclear how successful such strategies will prove in the future. This Article takes a different approach and focuses on preventing these human rights violations by strengthening corporate social responsibility (CSR) practices. Unfortunately, current CSR approaches focus on encouraging better corporate due diligence regarding the behavior of their suppliers. These approaches rely on auditing, monitoring, and disclosures and have dominated international (UN’s Protect, Respect, and Remedy Framework), national (Danish Act on Financial Statement) and sub-state (California’s Transparency in Supply Chains Act of 2010) efforts to combat human rights violations. However, this Article explains that these and similar efforts will be limited in their effects because of the problem of misaligned incentives between buyers and suppliers in global value chains. Suppliers have different business profiles, interests, and constraints compared to their multinational buyers. Therefore, conventional drivers for CSR that rely on reputational risks and consumer boycotts will not work for suppliers. Instead, public actors and other stakeholders must identify incentives that are appropriate for suppliers. Second, they must also adopt a reflexive law governance approach in order to transmit these incentives effectively in global value chains. This Article concludes by offering examples of CSR strategies that public actors should adopt in order to prevent another Foxconn or Rana Plaza tragedy.