Privatised Regulation

In July people were digesting the announcement from ISO, the International Organization for Standardization, that it would proceed in developing an 'International Standard for Social Responsibility'. The objective is to produce "a guidance document, written in plain language which is understandable and usable by non-specialists" and not intended for use in certification.114

ISO is an organisation that brings together national standards institutes, such as the British Standards Institute, which are usually membership based organisations that develop their own standards for business performance. Members are mainly businesses, their trade associations, and specialist 'conformity assessment' firms. Government agencies are also members, and many governments specify a particular standards institute as the nationally-recognised institute. ISO has developed over 7,000 voluntary standards on business behaviour. Most are explicitly technical, such as standards on the size of a plug, or the strength of a light bulb, but increasingly they address areas such as quality, environmental management and corporate responsibility.

ISO established an advisory group on corporate social responsibility in early 2003 to help it decide whether to develop standards in this area. The majority of the Advisory Group concluded that ISO should indeed proceed, by developing a guidance document, a step that was backed by the conference.115 Their recommendation follows significant activity by ISO's national members; standards bodies in Israel, Australia, the UK, France, Spain, Mexico, Malawi, Japan and Austria have developed or are developing CSR management standards or other instruments. This is the latest phase in the evolution of standards bodies, including ISO, away from a narrow technical focus towards one that embraces issues normally deliberated more public spheres - social and environmental issues. ISO Secretary-General Alan Bryden said that "the very fact that ISO is being asked to consider the area of social responsibility illustrates the extension of the scope and perception of ISO, from being primarily a technical organization, quite engaged in a broad range of product and technology areas, to one whose work is now increasingly recognized as having important economic and social repercussions."

The importance of standards making in this area should not be underestimated. Although most private standards are not mandatory by law, some of them, such as the ISO 9000 standards on quality management, have become mandatory for companies that want to trade internationally. Adherence to private standards is often a pre-condition for the acceptability of products by key consumers and/or distributors. Companies often oblige others to adopt certain policies, not on the basis of formal authority, but on the basis of resource dependency, such as when a small firm has to meet the requirements of the company it is supplying. Some insurance companies are requesting compliance with standards to reduce product liability exposure.

Private standards are becoming ever more linked to governmental and intergovernmental regulatory apparatus. In litigation, a company's certification or non-certification to a particular standard is sometimes put forward as evidence of due diligence, or not.116 Particularly in Europe, governments are granting some 'regulatory relief' to firms if they have installed, or will install, an environmental management system certified to appropriate standards. For example, the Netherlands introduced a 'framework permit' for pollution, which is more simple than the traditional one. It sets end-goals, and leaves the design of the processes and procedures to the company's environmental management system, which most of the time is one certified to ISO's 14001 standard. A cumulative reading of these changes may suggest that private regulation is if not de jure - at least de facto - substituting public regulation in determining what characteristics products and production/process methods need to match to be fit for trade. In effect, regulation is being privatised.117

Developments at the intergovernmental level are most important for the growing power of private standards, and represent a new stage to this privatisation of regulation, by imposing these private standards on governments. This is occurring through the Technical Barriers to Trade (TBT) agreement, and the General Agreement on Trade in Services (GATS), at the World Trade Organisation (WTO). If a company considers that a particular technical standard in a country is too strict for it to sell products or provide services to consumers in that country, it might lobby its government to bring a case against that country at the WTO. In determining whether the standards in question are "least trade restrictive" or not, the people on the WTO dispute resolution panel consider "relevant international standards." What constitutes a credible international standard is not mentioned in the agreements, but subsequent triennial reviews of the TBT have specified what they look like in a way that reflects ISO's approach, and codes have been drafted for the conduct of standards organisations, with ISO being nominated by the WTO as the registrar for acceptable organisations. Thus we have a situation where a company bringing a case at the WTO may have itself helped write the international standard that will then be used to judge the appropriateness of a domestic regulation set by government. There is some dispute as to whether this situation applies directly to the GATS agreement also, in which case it would mean that domestic regulations on standards of water, education, and medical service delivery, among others, would be subordinate to the relevant international private standards.118

This is not speculation. At the prompting of transnational water companies, ISO has been developing a standard for "service activities relating to drinking water supply and sewerage". According to local US water agencies, which voted against ISO developing this standard, standardisation in this area will facilitate global water privatisation, by giving transnational companies a common standard they can then suggest governments adopt for, and certainly not exceed with, their domestic regulations.119

Standards development is not free from manipulation, power struggles and opportunistic behaviour. They empower the organisations that decide their criteria and control their administration, monitoring and certification. Those who control standards have power over users, and not all users have the same influence in the process of standard development and administration. Standards affect where profits are made along a value chain. Therefore Stefano Ponte argues that rather than simply being a technical instrument to decrease transaction costs associated with asymmetry of information, they should be viewed as a strategic instrument of value chain coordination. This process not only affects people economically, but also physically, socially and environmentally, as the standards involve processes of negotiating to what extent to include negative externalities.120

This power of standards to govern trade is one reason to explain the current flurry of activity in different countries to establish CSR standards: to define them in ways that accord with the self-interests of those who define them. In the past there has been concern that standards have been developed in a way to deflect social and environmental concern, rather than improve performance. This has been the argument of some NGOs over the ISO14001 standard, which does not require a specific level of environmental performance but proscribes the type of management system that should be adopted, leaving companies to decide their own goals. Might this be repeated for social issues in the context of a CSR standard? The Chair of the Japanese initiative, Professor Iwao Taka, said their standard would "be flexible enough to respect cultural diversity." While it is important to ensure that the West's dominance in the CSR agenda, and its problematic effects, is addressed, recourse to cultural diversity has often been used to excuse companies choosing their own labour and human rights standards, not those of the international community. This concern led ISO's Advisory Group to reaffirm the place of UN agencies, such as the International Labour Organisation (ILO) in establishing such standards, and that any new standards or documents from ISO should not undermine this. Indeed there is a case for ISO advising its national members against any standards development that might contravene this principle.

A fundamental problem remains - democracy. As standards development and assessments are political not technical activities, and are increasingly regulating markets and even regulating how governments can regulate markets, we have to question their lack of democratic mandate to do this. This concern was partly expressed in the Advisory Group's recommendation that "ISO reviews its processes and where necessary makes adjustments to ensure meaningful participation by a fuller range of interested parties." ISO has made steps to ensure that participants from the South and from non-commercial groups can participate in the process of developing the standard. However, more opportunities for participation will not be enough, as there are basic problems with the organisational structure of ISO that limit its accountability to the millions affected by its decisions. The basic business model of the organisation has relied on selling copies of its standards - a barrier to full transparency. Its members are themselves all dominated by corporate memberships, and are the only organisations with that decision making power that is invested in voting rights. In addition, its existing standards, on issues such as certification and accreditation, have been developed in ways that accord with the needs of the conformity assessment industry, which may be contrary to the needs and approaches of other stakeholders. For example, a small NGO with local expertise would not be able or willing to change its practices in order to fit with ISO's standards on certification and accreditation processes. Side-stepping this problem, ISO has decided against developing any standard that could be assessed. Nevertheless, the existing institutional infrastructure of ISO and its members is founded on a commercial and objectivist ideology, undermining its ability to deal with complex and contested social and environmental issues.121

One member of the Advisory Group, Gordon Shepherd of WWF International, dissented from the final conclusion, particularly stressing concerns about participation and accountability. In addition, he pointed to how the Advisory Group had been tasked with looking at corporate social responsibility not that of all organizations, yet ISO was now committing to develop a standard for all organizations. That ISO might issue any instrument or advice with a presumption it could apply to non-governmental organisations (NGO), while not having explored the vast arena of (highly contested) standards, codes, and initiatives on NGO accountability, seems to indicate the problems that can arise from the commercial entrepreneurialism at the heart of private standards bodies. Democratic public policy making cannot be easily managed by an organisation seeking to sell products and services