Multinationals and Corporate Social Responsibility: Limitations and Opportunities in International Law

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The 'corporate social responsibility' ('CSR') movement has been described as one of the most important social movements of our time. This book looks at what the CSR movement means for multinationals, for states and for international law. International law is often criticized for being too 'state-centred', and ill-equipped to deal with the challenges of globalization. However, drawing from many and varied examples of state, NGO and corporate practice, this 2006 book argues that, while international law has its limitations, it presents more opportunities for the CSR regulation of multinationals than many people assume. The main obstacles to better regulation are, therefore, not legal, but political.

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Editorial Reviews

From the Publisher
"This is by far the best book to date exploring various national and international legal means through which to improve the human rights performance of transnational firms. Zerk is thorough yet innovative, strongly committed to the realization of rights yet admirably flexible in how best to achieve that end. She examines the responsibilities of states and corporations in equal balance, concluding that neither can suffice by itself. This should be required reading for anyone concerned with these critical issues."
John G. Ruggie, Kirkpatrick Professor of International Affairs and Director, Mossavar-Rahmani Center for Business & Government, Harvard University;UN Secretary-General's Special Representative for Business & Human Rights
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Product Details

Meet the Author

Formerly an energy law specialist with a major London firm, Dr Zerk now works as an independent researcher and consultant, advising on the legal and regulatory aspects of 'corporate social responsibility'.

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Read an Excerpt

Cambridge University Press
978-0-521-84499-4 - Multinationals and Corporate Social Responsibility - Limitations and Opportunities in International Law - by Jennifer A. Zerk


Multinationals are not traditional subjects of international law. Historically, the role of international law in relation to multinationals has primarily been to define the rights and obligations of states with respect to international investment issues. International law has been used to regulate the jurisdiction of states over multinationals, and their rights of diplomatic protection and, through treaties, has provided states with a means by which investment conditions for multinationals could be stabilised, harmonised, and generally enhanced.

   But the world is changing fast. Concern about the social and environmental impacts of ‘globalisation’ means that new demands are now being made of international law. Can international law respond to these demands? Does international law provide an adequate framework for the regulation of the social and environmental impacts of multinationals on a global scale? Many people think not. Some have doubted that international law is even ‘conceptually equipped’ to perform such a role.1 Public opinion, too, is generally sceptical as to the extent to which multinationals can be regulated effectively. Critics point out the ease with which multinationals can avoid national regulationthrough their mobility and flexibility of structure and organisation. While each state is entitled to regulate those parts of a multinational incorporated or operating within its territory, many states may not have the resources or political will to do so effectively, giving rise to differences in social and environmental standards between states. These differences, it is argued, are exploited by some multinationals for commercial advantage; that is, multinationals will tend to gravitate to regions in which production costs are lowest because of low regulatory standards and expectations. In turn, competition for inward investment is said to put further downward pressure on regulatory standards in those countries, especially the poorer countries of the world, struggling to achieve economic growth.

   The international ‘corporate social responsibility’ (‘CSR’) movement has developed in response to these perceived gaps in the regulatory system. While the concerns at the heart of the CSR movement are not new, the proposition that multinationals have responsibilities as ‘good corporate citizens’, independent of the regulatory framework within which they operate, has been hailed as one of the ‘big ideas of this new century’.2 The ‘social responsibilities’ of companies, and particularly of large multinationals, are now extensively discussed in books, political debates, academic articles and the media. The past few years have seen an extraordinary proliferation of ‘codes of conduct’ for multinationals, as international organisations, NGOs, trade unions, national governments, and multinationals themselves, all struggle to define what CSR means in practice.

   This book explores the implications of these developments for international law. Its central argument is that, while international law has its limitations, it is also capable of supporting new regulatory opportunities that have the potential greatly to improve the welfare of people and communities affected by multinational activities, particularly in less developed countries. These new opportunities are emerging as a consequence of developments at two levels: first, the growing willingness of ‘home states’ to consider strategies to regulate the performance of multinationals beyond national borders and, second, the intensification of efforts at international level to develop global ethical standards for business.

   CSR covers a wide range of concerns, but this book focuses on three issues that are currently at the forefront of most CSR-related campaigns: workplace, environmental and consumer safety standards. Although it is concerned with international law, it is written from a UK perspective (in the sense that many of the examples of regulatory techniques and ‘state practice’ are derived from UK law and governmental policy) although examples are also drawn from other jurisdictions (particularly the common law jurisdictions) where relevant. This is not to suggest that the UK experience is necessarily representative of what is happening in other jurisdictions. In reality there is a good deal of variation, even among the richer ‘home states’, in terms of the governmental resources devoted to international CSR issues (although it is relevant to note that the UK is widely regarded as one of the leaders in this area). Moreover, different cultural and legal traditions inevitably mean that no two states will approach CSR-related issues in exactly the same way.3 Unfortunately, there is not the space in this book to do proper justice to this diversity, but some of these differences – and also some key similarities – should be apparent from the chapters that follow.

   Part I of this book is concerned with background and theory. Chapter 1 outlines the background to the CSR movement, and the relationship between CSR and the law, before discussing some practical problems relating to the design of international CSR regimes for multinationals. Chapter 2 is a discussion of the basic principles of international law-making, as they relate to CSR. (Readers familiar with international law may prefer to skip this chapter.) Chapter 3 focuses on one issue of international law that is particularly problematic as far as the regulation of multinationals is concerned. This is, of course, the problem of ‘ jurisdiction’.

   Part II of this book is an examination of developing state practice in relation to CSR, and particularly the problem of ‘double standards’, that is, the practice of applying different social and environmental standards in different countries depending on prevailing regulatory conditions. Chapter 4 looks at emerging ‘extraterritorial’ regulatory techniques proposed, or already in use, by home states. The use of the term ‘home state’ in this book generally refers to the state of incorporation of the parent company of a multinational. ‘Host state’, on the other hand, means the state in which a particular investment is made or where activities of affiliates of the multinational take place. For convenience, ‘home states’ and ‘host states’ are often discussed as if they were two separate groups, although it is acknowledged that most ‘home states’ for multinationals are also important ‘host states’ as well. Chapter 5 considers the regulatory possibilities offered by litigation against parent companies of multinationals in their ‘home courts’ (often referred to as ‘foreign direct liability’ litigation).

   Part III explores the implications of developing state practice and various international initiatives for international law. Chapter 6 considers the prospects for a new body of international law – an ‘international law of CSR’ ? – and the form it could take. Chapter 7 concludes this book with an assessment of the capacity of international law to support the ‘new regulatory agenda’ with respect to CSR; that is, greater accountability of multinationals for their social and environmental performance (particularly in countries where regulatory standards are low or, for whatever reason, unlikely to be enforced) and an end to the practice of ‘double standards’. It is concluded that, while international law has its limitations (primarily its ‘state-centredness’), it also offers more opportunities for the social and environmental regulation of multinationals than many people assume. The question is: are we prepared to use them?


1     Multinationals and corporate social responsibility: a new regulatory agenda

Multinationals are among the most controversial players on the international stage today. But what are multinationals? And why are people so concerned about them? Is it possible to regulate multinationals effectively? Or are they, as many people believe, ‘beyond the law’?

   As this chapter will show, concerns about multinationals have developed and changed over time. Historically, public opposition to multinationals has arisen mainly from concerns about undue concentrations of power, and their implications for national sovereignty and cultures. In recent years, however, there has been a shift in emphasis away from these ‘state-centred’ concerns towards more ‘people-centred’ concerns, such as the environment and human rights. As will be seen, the CSR movement has played no small part in this.

   Most, if not all, leading companies now have strategies relating to CSR. Over the past few years there has been an explosion in management, assurance and reporting standards designed to help companies become more ‘socially responsible’ and to measure and report on their progress. Governments, too, have been forced to re-evaluate their policies on industry and enterprise to reflect these new concerns. Already, some new regulatory proposals and initiatives have appeared at national and regional level, designed to enhance ‘corporate accountability’. These will be explored further in chapter 4. Generally, though, governments of capital-exporting states like the UK and USA are reluctant to take steps which may harm the ‘international competitiveness’ of their industrial sector and for this reason tend to favour a ‘voluntary’ approach to CSR. The underlying philosophy is that the drivers for companies to act ethically and to do good, above and beyond minimum legal requirements, should come primarily from employees, investors, consumers and the general public, rather than from further governmental intervention. As will be seen, this suggests a specific set of regulatory tactics – to find ways to harness these influences on corporate behaviour, without adding significantly to the ‘regulatory burden’ of companies.

   Whether CSR is actually ‘voluntary’ is open to question. Nevertheless, given the approach of most governments to CSR to date, it is not surprising that the idea that multinationals may be subject to direct obligations under international human rights law is currently attracting so much attention. It is important to remember, though, that while CSR and human rights do overlap to some extent, they are not the same, and it would be a mistake to confuse the two. Also, human rights law is not the only potential source of international CSR regulation. Other, more traditional, regulatory strategies are possible, but whatever approach is taken, multinationals do raise some particularly difficult practical and definitional issues when it comes to designing effective regulatory regimes. These are discussed towards the end of this chapter.

Why are people so concerned about multinationals?

Big business elicits strong reactions. In his book The Corporation, now a successful television series and film, the Canadian academic Joel Bakan argues that the corporation is ‘a pathological institution, a dangerous possessor of the great power it wields over people and societies’.1 The multinational corporation, because of its apparent mobility and assumed lack of loyalty to any one jurisdiction, is particularly mistrusted. But how did this mistrust come about?

   In Europe, the controversy surrounding multinationals can be traced back to the post-war years.2 This was a time of huge expansion for corporations, particularly those originating in the USA.3 Many Europeans were beginning to resent the level of reliance by local industry on US foreign investment and worried, too, about the ‘Americanisation’ of culture, tastes and management methods. By the late 1960s, opposition to US-owned multinationals was high, as evidenced by the popularity of books critical of the ‘American invasion’.4

   In the USA, on the other hand, multinationals appear to have been regarded relatively benignly by the public until the 1960s. But by this time the reputation of corporate America had begun to wane, as Hood vividly describes:

Investigative journalism became a heroic, even romantic, calling, with the name of the game being to catch greedy corporations in the act of polluting the water, selling shoddy and overpriced products, exploiting workers and families, and sacrificing the public’s health, safety and welfare to make a quick buck. On television and in the movies, business executives increasingly became villains, to be challenged by heroic lawyers, policemen, reporters and activists.5

By the 1970s, the multinational had become synonymous, around the world, with power and wealth and, to many, a potent symbol of the economic and political dominance of the USA.6 What is striking about much of the literature on multinationals from that time, compared with today, is the extent to which the interests of the multinational are identified with the interests of its state of origin, or ‘home state’.7 Multinationals were viewed, perhaps simplistically, as economic agents of their home states, with no particular allegiances to the states in which they chose to invest. With this mindset, the nationality of the foreign investor was of crucial importance. Foreign-owned multinationals were regarded as a threat to the sovereignty of their host states in two ways: first, because of fears that they might exercise undue influence over the host state’s national policies and, second, because they helped to perpetuate inequalities between states. But while foreign ownership of local industry was a concern for all host states, these issues had particular significance for less developed countries.

   Concerns of ‘Southern’ or ‘less developed’ countries about multinationals are usually explained against the background of the post-colonial campaign by the ‘Group of 77’ for a ‘New International Economic Order’. Many newly independent countries were highly sensitive to the possibility that, by seeking inward investment, they might merely be replacing one form of colonialism with another. These states faced a dilemma. On the one hand, foreign investment was seen as a key to economic growth and prosperity. On the other hand, governments of these countries were reluctant to surrender control over valuable economic resources to those they saw as representatives of foreign economic interests. In addition, less developed host states were concerned about the possibility of meddling by multinationals in domestic political processes, either for their own commercial reasons or (more sinisterly) on behalf of their ‘home state’.8

   Relationships between multinationals and their ‘home states’ were not always harmonious either. Home states recognised the potential threat posed by multinationals to local economic, employment and security policies.9 One of the most contentious issues within home states was the impact of overseas investment on local job markets. Unsurprisingly, it was in the USA where the ‘migration’ of jobs first became a significant political issue. Worried by the increasing proportion of goods destined for the US market that were being produced outside the USA, labour leaders became, through the 1970s, increasingly vocal. Not only was American ‘blue collar’ labour in danger of becoming ‘obsolete’, according to some critics, but trade unions, organised on national lines, were losing the leverage needed to protect the jobs that remained.10 As a result, trade unions began lobbying for legislation to cut back on investment incentives, and to restrict the export of capital and technology, where American jobs might be at risk.11

   By 1972, concerns about the implications of multinational activities had become sufficiently strong to prompt the Economic and Social Council of the UN to initiate a dedicated research project to ‘study the role of multinational corporations and their impact on the process of development’ and to ‘submit recommendations for further action’.12 The report of the UN’s working group, handed down in June 1974, summed up the competing views and interests as follows:

© Cambridge University Press
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Table of Contents

Preface; Table of treaties, declarations and other international instruments; Table of cases; Table of statutes and statutory instruments; Abbreviations; Introduction; Part I. Regulatory Issues and Problems: 1. Multinationals and corporate social responsibility: a new regulatory agenda; 2. Multinationals under international law; 3. Multinationals under national law: the problem of jurisdiction; Part II. Home State Regulation of Multinationals: 4. New directions in extraterritorial regulation of CSR standards; 5. Private claims for personal injury and environmental harm; Part III. International Regulation of Multinationals: 6. Towards an international law of CSR?; 7. Multinationals and CSR: limitations and opportunities in international law; Bibliography.

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