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Testimony: 

Before the Congressional Human Rights Caucus: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 3:00 p.m. EDT: 

Wednesday, September 28, 2005: 

Globalization: 

Observations on Federal Activities Related to Global Corporate Social 
Responsibility and Human Rights: 

Statement of Loren Yager, Director: 
International Affairs and Trade: 

GAO-05-1049T: 

GAO Highlights: 

Highlights of GAO-05-1049T, a testimony before the Congressional Human 
Rights Caucus: 

Why GAO Did This Study: 

The trend toward globalization has intensified the debate about the 
proper role of business and government in global “corporate social 
responsibility” (CSR), which involves business efforts to address
the social and environmental concerns associated with business 
operations. The growth in global trade and the dramatic increase in 
foreign direct investment in developing countries raise questions 
regarding CSR-related issues such as labor, environment, and human 
rights. U.S. firms with operations in many countries employ millions of 
foreign workers and conduct a range of CSR activities to address these 
issues. However, there is controversy as to the proper government role. 
GAO describes (1) federal agency policies and programs relating to 
global CSR and (2) different perspectives regarding the appropriate 
U.S. government role in corporate global CSR efforts. 

What GAO Found: 

Although the United States has no broad federal CSR mandate, we 
identified 12 U.S. agencies with over 50 programs, policies, and 
activities that generally fall into four key government roles: 
endorsing, facilitating, partnering, and mandating. However, many of 
these programs have small budgets and staff and aim to accomplish 
broader agency mission goals, rather than being specifically designed 
to facilitate or promote companies’ global CSR activities. The U.S. 
government endorses CSR by providing awards to companies, such as the 
Department of State’s Award for Corporate Excellence. Federal programs 
facilitate CSR primarily by providing information, funding, and 
incentives to key players to engage in CSR. For example, the Department 
of Commerce facilitates CSR by training its commercial service officers 
specifically on corporate stewardship. The Department of State’s 
efforts to convene nongovernmental organizations (NGO) and oil and 
mining companies to ensure respect for human rights in their overseas 
security procedures through the Voluntary Principles on Security and 
Human Rights provide a partnering example. Finally, some agencies, such 
as the Overseas Private Investment Corporation (OPIC), mandate CSR by 
requiring companies to meet criteria consistent with CSR to obtain 
agency services. 

Perspectives on the government’s role are tied to perspectives on CSR 
and its connection to profit. Those with a free-market economic 
perspective state that corporations should be primarily concerned with 
earning profits and that government should not promote CSR because it 
reduces profit. Those with a “business case” perspective contend that 
CSR efforts can increase businesses’ long-term profits and value, and 
welcome government assistance with voluntary business efforts. Finally, 
those with a social issues perspective believe that business should 
contribute to broader social goals but have mixed opinions of whether 
this should be accomplished through voluntary CSR actions or more 
extensive regulation. Most representatives we spoke with at U.S. 
companies and other groups who were actively engaged in CSR supported a 
government role in global CSR, yet views on the appropriate role 
varied. Most supported U.S. federal agency efforts to endorse and 
facilitate CSR and partner with companies voluntarily pursuing CSR 
actions. 

Examples of Federal CSR-Related Programs Addressing Human Rights and 
Labor Standards: 

[See Table 1] 

www.gao.gov/cgi-bin/getrpt?GAO-05-1049T. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Loren Yager at (202) 512-
4347 or yagerl@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Caucus: 

Thank you for the opportunity to discuss our work on the federal 
involvement in global corporate social responsibility and our recent 
report on this topic.[Footnote 1] We appreciate the continued interest 
of Congress and this caucus in these issues, and also recognize the 
leadership of the Kenan Institute.[Footnote 2] The trend toward 
globalization--as evidenced by the growth in global trade and the 
dramatic increase in foreign direct investment in developing countries, 
from $22 billion in 1990 to $154 billion in 2002--has intensified the 
debate about the role of business and the U.S. government in addressing 
"corporate social responsibility" (CSR) related issues. The term "CSR" 
is often used to refer to business efforts to address the impact of 
business operations on such concerns as human rights, labor, and the 
environment. "Global CSR" is sometimes used to refer to business 
efforts to address the social impacts of business in the global 
economy. Discussions of global CSR in the context of developing 
countries focus on the need for business to address the gaps from 
inadequate or poorly enforced laws related to the protection of labor, 
human rights, the environment, and other social resources. 

Given the role of U.S. corporations in the growth of trade and 
investment in developing nations and your interest in issues related to 
globalization, this testimony describes (1) global corporate social 
responsibility, (2) federal agency policies and programs related to 
global CSR, and (3) different perspectives on the appropriate U.S. 
government role in global CSR. While our original report covers the 
full range of issues under the CSR umbrella, in this testimony we 
primarily focus our examples on human rights and labor. 

To determine what policies and programs federal agencies have adopted 
that relate to global CSR, we surveyed federal legislation and spoke 
with agency officials and experts in CSR. To identify different 
perspectives regarding the role of the U.S. government related to 
corporate global CSR efforts, we reviewed CSR-related trade and 
business literature and interviewed representatives from U.S. 
multinational corporations, business interest groups, investor groups, 
nongovernmental organizations (NGO), and academic institutions that are 
leaders in the CSR field. We conducted our work from May 2004 through 
May 2005 in accordance with generally accepted government auditing 
standards. 

Summary: 

Global CSR is an umbrella concept that can best be described through 
the definitions used for the term, the actions companies take to 
practice CSR, and the roles of key players. CSR can be broadly defined 
as addressing the interests of all company stakeholders, which include 
not only shareholders but also customers, employees, suppliers, and the 
surrounding community, on issues such as environmental protection, 
worker safety, and ethical conduct. Global CSR addresses these issues 
within international markets, particularly in developing countries. 
U.S. businesses take a variety of actions related to CSR that range 
from voluntary, such as philanthropic donations, to government 
mandated, such as disclosure of significant environmental conditions. 
Civil society, investor groups, multilateral organizations, and 
governments play key roles in identifying issues of concern and in 
encouraging businesses to adopt CSR efforts to address these issues. 

Although the United States has no broad federal CSR mandate, we 
identified 12 U.S. agencies with over 50 programs, policies, and 
activities that generally fall into four public sector roles: 
endorsing, facilitating, partnering, and mandating. However, many of 
these programs have small budgets and staff and aim to accomplish 
broader agency mission goals, rather than being specifically designed 
to facilitate or promote companies' global CSR activities. The U.S. 
government endorses CSR by providing awards to companies, such as the 
Department of State's Award for Corporate Excellence and discussing CSR 
publicly. Federal programs facilitate CSR primarily by providing 
information or providing funding and incentives to key players to 
engage in CSR. For example, the Department of Commerce facilitates CSR 
by training its commercial service officers specifically on corporate 
stewardship. To illustrate partnering, the Department of State works 
with the United Kingdom to convene NGOs and oil and mining companies to 
implement the Voluntary Principles on Security and Human Rights to 
ensure respect for human rights in their security procedures. Finally, 
in terms of mandating, some agencies, such as the Overseas Private 
Investment Corporation (OPIC), mandate CSR by requiring companies to 
meet criteria consistent with CSR to obtain agency services. 

Perspectives of the government's proper role are tied to perspectives 
on CSR and its connection to profit. Those with a free-market economic 
perspective state that corporations should be primarily concerned with 
earning profits and that government should not promote CSR because it 
reduces profit. Those with a "business case" perspective contend that 
CSR efforts can increase long-term profits and value and welcome 
government assistance with voluntary CSR efforts. Finally, those with a 
social issues perspective believe that business should contribute to 
broader social goals, but have mixed opinions on whether this should be 
accomplished through voluntary CSR actions or more extensive 
regulation. Most representatives we spoke with at U.S. companies and 
other groups who were actively engaged in CSR supported a government 
role in global CSR, yet views varied regarding the appropriate federal 
role. In general, most were supportive of U.S. federal agency efforts 
to endorse and facilitate CSR and partner with companies voluntarily 
pursuing CSR actions. 

Background: 

The expansion of world trade and investment has led to the increasing 
integration of the world economy in recent decades--a process often 
referred to as "globalization." Total trade in developing countries, 
exports and imports, rose from less than $1.5 trillion in 1990 to $3.8 
trillion in 2002, while foreign direct investment in developing 
counties grew even faster during this period, from $22 billion to $154 
billion. Some view globalization as fostering economic growth, 
increasing employment, and improving living standards in both developed 
and developing nations. Others claim globalization has negative social 
impacts and raise concerns about the expanding activities of 
multinational corporations, particularly in developing countries. U.S. 
multinational corporations are now faced with difficult issues, such as 
the treatment and conditions of foreign workers in corporate supply 
chains, human rights issues associated with authoritarian governments 
in host countries, as well as environmental and health issues 
associated with production in diverse local communities. In addition, 
some negative incidents involving U.S.-based companies have been widely 
publicized, hurting their own and the United States' image, such as the 
use of sweatshops in the manufacture of clothing and other products. 

U.S. corporations are increasingly building operations or buying 
products from sources in developing countries. However, the legal, 
regulatory and ethical environments in which U.S. businesses and their 
suppliers operate vary across countries. Given the limited capacity of 
some developing countries, CSR advocates argue that corporations 
themselves must establish and maintain codes of conduct regarding 
operating standards in these environments. Companies face increasing 
pressure from nongovernmental organizations, the media, "socially 
responsible" investor groups, and other stakeholders to adhere to high 
standards globally in their own operations and throughout their supply 
chains. For example, recently U.S. electronics companies signed a joint 
code of conduct to protect working conditions, workers' rights, and the 
environment in the electronics industry supply chain. Despite these 
efforts, some CSR advocates call for more government action to promote 
CSR, with some noting that several national governments in Europe have 
put in place mechanisms to encourage or require the adoption of CSR 
practices. In addition, some Members of Congress have shown support for 
CSR-related policies, similar to those advocated by working groups 
convened by the Kenan Institute. 

Global Corporate Social Responsibility Embraces a Range of Human Rights 
Concerns: 

Global CSR is an umbrella concept that can best be understood by 
describing the different definitions used for the term, the actions 
businesses take to practice CSR, and the roles of key players involved 
in CSR. Although groups use different definitions and terms, CSR 
generally involves business efforts to address a broad range of issues, 
including labor and human rights. However, most definitions suggest 
that, in addition to addressing the interests of its shareholders, 
business should address the interests of its other stakeholders, 
including customers, employees, suppliers, and the local community. 

Business actions addressing CSR concerns related to human rights can be 
broadly grouped into those addressing human rights, the workplace, and 
community development:[Footnote 3]

* Human rights: Business actions addressing human rights assure basic 
standards of treatment to all people, regardless of nationality, 
gender, race, economic status, or religion. Human rights policies 
generally guard against such concerns as child labor in manufacturing, 
government action depriving citizens of basic civil liberties, and 
forced or prison labor. 

* Workplace: Business actions related to the workplace involve human 
resource policies directly impacting employees, such as compensation 
and benefits, career development, and health and wellness issues. 
Examples of workplace CSR actions include adoption of global workplace 
standards, involvement of employees in business decisions, and 
establishment of employee grievance policies and procedures. 

* Community development: Business actions focused on community 
development intend to benefit the business and the community 
economically, particularly for low-income and underserved communities. 
Community development activities include employing and training 
disadvantaged workers, partnering with minority-and women-owned 
businesses, and locating facilities in underserved communities. 

The extent and type of business actions are influenced by key players 
in CSR that include not only businesses, but also civil society, 
investor groups, multilateral organizations, and governments. For 
example, the Kennedy School of Government notes that the growth in 
civil society is one of the drivers making CSR more mainstream. Civil 
society activities exposing sweatshops or other questionable corporate 
activities can provide an incentive for firms to act in ways that would 
avoid or mitigate damage to their reputation. Investor groups such as 
mutual funds and pension plans are responsible for a growing proportion 
of U.S. investments and, therefore, are a potentially increasing 
influence over businesses' CSR actions. Finally, multilateral 
organizations have played an active role in developing standards 
relating to CSR and in promoting the concept of CSR. 

Although No Broad Federal CSR Mandate Exists, Federal Agencies Conduct 
Activities Related to Global CSR: 

To obtain information on specific agency programs and policies related 
to CSR, we used a two-step process. First, we provided a general 
description of global CSR to agency officials and asked them to 
identify relevant programs, policies, and efforts within their agency. 
We then sent a questionnaire to officials responsible for each 
identified program and interviewed officials to obtain further 
information. We found that, while there is no comprehensive legislation 
mandating a federal role in global CSR, and few agencies actually 
define CSR, over 50 programs at 12 agencies are related to global CSR. 
Many agencies work with the private sector on issues that are generally 
covered by the concept "corporate social responsibility," such as 
labor, human rights, the environment, and corporate governance, but do 
not label their activities CSR.[Footnote 4]

While Agency Perspectives on CSR Vary, Many Federal Programs in Pursuit 
of Broader Mission Goals Are Related to Global CSR: 

Agency perspectives on global corporate social responsibility vary from 
active endorsement to reluctance to label their programs CSR. For 
example, several bureaus in the Department of State directly support 
corporate CSR practices as a means to enhance their own efforts aimed 
at public diplomacy, protecting human rights, and other areas. 
Similarly, the Department of Commerce has officially endorsed corporate 
social responsibility, stating that American companies must follow the 
highest standards of conduct and contribute to the communities where 
they do business. 

However, other agencies do not want their programs to be labeled CSR 
because they do not see it as part of their mission or believe they 
lack authority to engage in CSR activities. For example, while 
officials from the Office of the U.S. Trade Representative acknowledged 
that the agency undertakes some activities that might complement CSR, 
they stated that the agency's mission is to negotiate trade agreements, 
not to engage in CSR efforts. Similarly, a senior official at the 
Department of Labor said that, while the department has many activities 
that could conceivably be seen as supporting global CSR, the department 
is not doing them for that reason. He believes the department lacks 
specific authority to work on CSR. 

Some agencies without a formal position on CSR actively take advantage 
of the overlap between their missions and company CSR practices to 
achieve their broader mission goals. For example, the U.S. Agency for 
International Development (USAID) and the Inter-American Foundation 
(IAF) leverage resources from corporations for development missions. 
Specifically, USAID's Global Development Alliance aims to achieve the 
agency's development goals by leveraging resources from the private 
sector and other partners. USAID's alliances address a range of issues, 
such as encouraging economic growth, developing businesses and 
workforces, addressing health and environmental problems, and expanding 
access to education and technology. 

Other agencies, such as OPIC, the Export-Import Bank of the United 
States (Ex-Im Bank), and the U.S. Securities and Exchange Commission 
(SEC), engage in activities related to CSR, generally in response to 
statutory or congressional requirements rather than based on a formal 
agency decision on CSR. 

Many Federal CSR-Related Programs Are Recent and Have Small Budgets and 
Staffs: 

Many of the programs we identified started in the last 5 years. For 
example, the Department of State's Partnership to Eliminate Sweatshops 
Program started in 2000 to provide grants to address unacceptable 
working conditions in manufacturing facilities overseas that produce 
goods for the U.S. market. In fiscal year 2003, the program funded the 
development of a confidential database of factory-monitoring reports 
that would be accessible by companies seeking compliance information on 
factories in their supply chains. The effort was in response to U.S. 
companies that have cited lack of information about factory compliance 
as an obstacle to improving their own compliance efforts and 
responsible behavior. Since 2001, several presidential initiatives 
aimed at foreign assistance have partnered with companies to achieve 
the initiative goals, which also complement corporate CSR practices. 

While some federal agency CSR-related activities address labor and 
human rights issues directly, others cover a broader portfolio of 
issues that sometimes include labor and human rights. The Department of 
Commerce's training for commercial service officers on human rights, 
rule of law, and corporate stewardship offers an example of a federal 
program with a specific human rights focus. Commerce developed the 
training in response to congressional concern that increased trade 
between the United States and its trading partners might come at the 
expense of human rights. Table 1 provides additional examples of 
federal CSR-related programs specifically focused on human rights and 
labor standards. 

Table 1: Examples of Federal CSR-Related Programs Specifically Focused 
on Human Rights and Labor Standards: 

Agency: Commerce; 
Program/activity: Training on human rights, rule of law and corporate 
stewardship; 
Objective: To train commercial service officers and foreign service 
nationals on rule of law, human rights and corporate stewardship. 

Agency: Commerce; 
Program/activity: Implementation of the Labor Standards Provision of 
the Bilateral Textile Agreement with Cambodia[A]; 
Objective: To provide incentives to the government of Cambodia to 
improve working conditions in the Cambodian textile and apparel 
industry through effective enforcement of local labor laws and 
internationally recognized core labor standards. 

Agency: Labor; 
Program/activity: Protecting the Basic Rights of Workers program[B]; 
Objective: To improve the capacity of developing-country governments to 
achieve compliance with national labor laws and internationally 
recognized workers rights. 

Agency: Labor; 
Program/activity: International Child Labor Program--activities working 
with industry associations; 
Objective: To support efforts to eradicate exploitive child labor 
worldwide. 

Agency: State; 
Program/activity: Partnership to Eliminate Sweatshops Program; 
Objective: To address unacceptable working conditions in manufacturing 
facilities overseas that produce goods for the U.S. market. 

Agency: State; 
Program/activity:  Voluntary Principles on Security and Human Rights; 
Objective: To provide guidance to extractive companies on how to ensure 
respect for human rights in the creation and implementation of security 
procedures. 

Source: GAO analysis of agency information. 

[A] The agreement with Cambodia expired on December 31, 2004. 

[B] An official from the Protecting the Basic Rights of Workers 
program, which reported a $20 million budget in fiscal year 2003, said 
the program received no funding from the fiscal year 2005 
appropriations. 

[End of table]

An example of a broad CSR-related program that may encompass human 
rights and labor issues is USAID's Global Development Alliance--which 
supports numerous public-private partnerships, of which some focus on 
these issues. To illustrate, USAID partnered with one U.S. corporation 
operating in postwar Angola to build up the country's business sector 
and equip Angola's workforce with necessary business skills. The 
company and USAID each agreed in 2002 to provide $10 million over 5 
years for a series of projects to strengthen small and medium-sized 
businesses, including helping refugees and former soldiers to return to 
agriculture, developing an enterprise development bank, and supporting 
the creation of an agricultural training center. (Table 2 provides 
additional examples of broad federal CSR-related programs that may 
encompass human rights and labor standards). 

Table 2: Examples of Broadly Focused Federal CSR-Related Programs That 
May Encompass Human Rights: 

Agency: State; 
Program: Secretary of State's Award for Corporate Excellence; 
Objective: To promote best business practices, good corporate 
governance, and democratic values overseas. 

Agency: State; 
Program: Organization for Economic Cooperation and Development (OECD) 
National Contact Point; 
Objective: To raise awareness among U.S. companies of the OECD 
Guidelines for Multinational Enterprises and to facilitate resolution 
when parties raise issues concerning U.S. companies' treatment of the 
guidelines.

Agency: USAID; 
Program: Global Development Alliance; 
Objective: To encourage public-private partnerships for development 
projects. 

Source: GAO analysis of agency information. 

[End of table]

Federal agency activities related to CSR focus on a range of countries 
and sectors. For example, the International Child Labor Program at the 
Department of Labor funds projects in Bangladesh, Pakistan, Central 
America, and West Africa that work with various industry associations 
to address the use of child labor. The Department of State funds a 
number of projects in China and other countries in various sectors, 
including the apparel industry and the extractives sector. 

Many programs do not specifically track budget and staffing information 
for their CSR-related activities. Of the programs reporting budget and 
staffing information, most are relatively small. Similarly, many 
federal CSR efforts are staffed by agency officials with multiple 
responsibilities who work part time on the effort. 

Federal Agencies Conduct a Range of Activities That Endorse, 
Facilitate, Partner, and Mandate CSR Activities, Some Related to Human 
Rights: 

Most U.S. government programs, policies, and activities related to 
global CSR can be loosely categorized into the World Bank's four public 
sector roles: endorsing, facilitating, partnering, and mandating. These 
roles range from the least government involvement (endorsing companies' 
voluntary efforts) to the most government involvement (mandating 
behavior consistent with CSR). Although some federal efforts related to 
CSR can be classified as serving more than one role, roughly two-thirds 
of the U.S. government programs, policies, and activities that we 
identified fell in the middle of the spectrum by facilitating and/or 
partnering with companies on their voluntary CSR efforts. The remainder 
either fell into the mandating and endorsing roles or outside the World 
Bank's roles. Figure 1 illustrates the range of U.S. government 
activities in the World Bank framework. 

Figure 1: Illustrative U.S. Government Activities Related to CSR Range 
from Endorsing CSR to Mandating CSR: 

[See PDF for image]

[End of figure]

* Endorsing: The U.S. government has a number of awards programs that 
endorse CSR by recognizing companies for socially responsible 
activities. For example, the Department of State's annual Award for 
Corporate Excellence emphasizes the role U.S. businesses play to 
advance good corporate governance, best practices, and democratic 
values overseas. Since 1999, 12 businesses have received the Award for 
Corporate Excellence, following nominations submitted by chiefs of 
missions at U.S. embassies and consulates abroad. 

* Facilitating: The U.S. government facilitates CSR by providing 
information, funding, or incentives to companies and other players to 
engage in CSR-related issues. For example, the Department of Commerce 
trains commercial service employees on rule of law, human rights, and 
corporate stewardship. The training helps these officers provide 
information on corporate stewardship issues to companies involved in 
the export promotion process. 

* Partnering: Several U.S. government programs partner with 
corporations or convene partnerships with key stakeholders, which can 
help companies accomplish their CSR initiatives. For example, the 
Department of State has been a key player in convening stakeholders to 
develop the Voluntary Principles on Security and Human Rights, which 
provides guidance to oil and mining companies on how to ensure respect 
for human rights in their security procedures. According to a State 
Department official, nearly every major oil and mining company is now a 
participant in the Voluntary Principles process. 

* Mandating: While there is debate over whether complying with laws and 
regulations constitutes CSR, a number of federal requirements and 
regulatory mechanisms that mandate social and environmental issues 
could fall under the CSR umbrella. For example, the Overseas Private 
Investment Corporation (OPIC), which provides long-term financing and 
political risk insurance to U.S. companies investing in over 150 
emerging markets and developing countries, requires that all 
beneficiary companies comply with certain CSR criteria. These 
requirements cover issues that include host country development impact, 
environmental protection, international labor rights, and human rights. 
The requirements are written into contracts, and OPIC specifies that 
they must be carried down to the subcontract level. 

Strengthening Enforcement and Compliance with CSR-Related Regulations 
in Other Countries: 

In addition to the four roles discussed above, a number of U.S. 
programs foster a business environment conducive to CSR by working with 
other national governments to strengthen compliance and enforcement of 
social and environmental regulations in countries where U.S. companies 
operate. These efforts serve to protect U.S. businesses from competing 
with companies that are not complying with weakly enforced laws and 
regulations. For example, the Department of Labor's program Protecting 
the Basic Rights of Workers works with host country ministries of labor 
to improve adherence to international core labor standards and 
acceptable conditions of work in developing countries. In accordance 
with a congressional appropriation, in fiscal year 2003 the office 
allocated $20 million for these efforts worldwide, including in a 
number of countries in Africa, the America, and Asia, and in Ukraine. 
However, according to an agency official, this program's budget 
decreased to $2.5 million in fiscal year 2004 and no funding was 
provided in fiscal year 2005. 

Perspectives on the Appropriate Government Role in CSR Vary, but Many 
Support Federal Assistance for Voluntary Efforts: 

Based on our review of CSR literature, perspectives on the appropriate 
role of government in CSR vary, but generally correlate with three 
major perspectives on the connection of CSR to business profits: (1) 
free-market economic, (2) "business case," and (3) social issues. 

* Free-market economic perspective: 

Those with a free-market economic perspective generally view CSR as a 
potentially profit-depleting activity that will ultimately diminish the 
effectiveness of business and a free-market economy. According to this 
perspective, business managers have a primary duty to maximize value 
for shareholders, and in doing this, businesses serve the general 
welfare by directing resources to produce goods and services society 
wants. In this view, engaging in CSR actions that are not based on 
profitability can affect not only business performance but also 
potentially reduce the general welfare of society. While this free-
market economic perspective recognizes that government has a role in 
structuring the legal framework of a market economy, those with this 
view do not support government involvement in the general adoption of 
the concept of CSR. 

* Business-case perspective: 

Many CSR proponents cite a "business-case" perspective, in which 
business CSR efforts are supported based on their contribution to 
business profit and value. Those with the business-case perspective 
reason that businesses can undertake CSR actions that will increase 
businesses' value or return on investment in terms of increased 
revenue, increased asset value, or reduced cost. 

Engaging in CSR practices may also help multinational businesses manage 
certain political and reputation risks in their operations, 
particularly with regard to host countries in the developing 
world.[Footnote 5] Negative publicity can seriously undermine the 
reputation of multinational businesses internationally, and it can 
create a political climate that may lead a host government to take 
actions, such as regulations or other restrictions, that can undermine 
firms' efficiency and profitability. In addition, some developing 
countries may not have adequate laws to address concerns about workers 
rights or the local environment, and even where they do, these 
countries may not have the resources, technical expertise, or the 
willingness to adequately enforce their laws and regulations. By 
demonstrating a commitment to good business practices, such as through 
CSR, multinational businesses may send a signal that they are committed 
to helping mitigate problems or issues that may arise regarding their 
operations, thus creating a more positive climate in which to pursue 
business opportunities. 

Those with a business-case perspective view a major role of government 
as supporting businesses' voluntary CSR-related efforts. Supporters of 
this perspective look for business to work with civil society and 
government to develop CSR approaches that address relevant social 
issues. 

* Social issues perspective: 

Those with a social issues perspective focus on the extent to which 
business addresses social issues, but opinions within this group are 
mixed on whether to rely on voluntary or mandatory CSR approaches. A 
1999 survey of 25,000 consumers worldwide found that two-thirds of the 
population in countries surveyed indicated that "they want companies to 
go beyond their historical role of making a profit, paying taxes, 
employing people and obeying all laws; they want companies to 
contribute to broader societal goals as well."[Footnote 6] Some 
supporters of the social issues perspective cite successes of some 
business voluntary CSR efforts in contributing to social issues. Some 
also call on business to voluntarily adopt CSR practices to address 
social issues beyond what might be justified by business profit. Such 
organizations see a role for government in fostering voluntary 
corporate CSR actions. 

Others with a social issues perspective believe that business is 
primarily concerned with profit and thus should not be trusted to 
develop solutions for important social issues on their own. According 
to those with this view, business involvement in CSR efforts can become 
merely a branch of public relations instead of addressing social 
problems.[Footnote 7] As a result, they feel that governments should 
move to mandate CSR. Several groups have argued for increased 
government engagement in CSR initiatives aimed at ensuring that 
business adhere to international norms. For example, one consumer 
group's position paper on CSR calls on governments and international 
agencies to introduce legislation to set standards that transnational 
corporations must observe and also a framework for monitoring corporate 
behavior.[Footnote 8]

Views of Groups Actively Engaged in CSR Vary on the Appropriate Role of 
the U.S. Government in Global CSR: 

In addition to reviewing the available literature, we also interviewed 
32 individuals actively engaged in CSR representing companies; business 
groups; NGOs focused on environmental, human rights, and labor issues; 
investor groups; and academic institutions to obtain their views on the 
appropriate role for the federal government and the impact of current 
federal activities on their CSR efforts.[Footnote 9]

A majority of respondents supported a government role in global CSR, 
yet views varied regarding the appropriate federal role and the impact 
of current activities. Some respondents based their discussion of the 
government role on their knowledge of current U.S. government 
activities related to global CSR, yet we found that several were 
unaware of these efforts. While some said they were aware of U.S. 
government efforts, they primarily cited domestic CSR efforts or 
initiatives that are not led by the U.S. government. 

Mixed Reactions Regarding the Impact of U.S. Government Efforts to 
Endorse CSR through Awards: 

A number of respondents were aware of U.S. government award programs 
that endorse CSR, but had mixed reactions regarding their 
effectiveness. Whereas a majority of companies we interviewed who 
commented on awards said they have a positive impact, for example, by 
motivating employees and validating the company's efforts, some 
companies were not motivated by awards. Most of the business groups 
reacted positively to federal government awards, stating that awards 
call attention to success stories and provide a signal of the type of 
behavior the government likes, help to motivate companies, and provide 
a positive counterbalance to regulations and compliance by rewarding 
voluntary efforts. Most of the NGOs that were aware of federal 
government awards for global CSR activities were skeptical of the 
impact of the awards, questioning the nominations and selection 
processes and whether the awards are a good indicator of companies' CSR 
performance. 

Respondents Supported Government Efforts to Facilitate CSR and Partner: 

Many respondents from the various groups expressed support for federal 
government efforts to facilitate CSR, especially through providing 
information. Representatives from companies and other groups suggested 
that the government could play a more active role in providing 
information on how to set benchmarks in areas such as the environment 
and human rights, providing information on best practices and how to 
start CSR activities in other countries, or establishing a 
clearinghouse with CSR-related information. 

Many respondents viewed government partnerships with companies and 
efforts to convene stakeholders to accomplish CSR goals favorably and 
thought it was an appropriate role for the U.S. government. Many 
organizations supported a federal role in partnering by convening 
stakeholders to address specific CSR issues or to share information. 
For example, the Department of State's involvement in developing the 
Voluntary Principles on Security and Human Rights was cited as an 
example of a positive effort by the U.S. government to convene 
stakeholders to address a CSR-related issue. 

Mixed Views on Government Mandating CSR through Laws and Regulations: 

Companies and business groups generally held mixed views regarding the 
impact of laws and regulations on company global CSR efforts, whereas 
NGOs and investor groups largely believed that laws have a positive 
impact on CSR. In general, these latter groups desired a government 
role in mandating CSR, especially to increase disclosure and 
transparency of company CSR activities. A few respondents cited the 
lack of U.S. legislation or involvement in CSR as an impediment to 
companies' CSR efforts. 

While some companies were concerned about burdensome mandates, several 
said that certain existing regulations and government efforts create 
minimum standards and level the playing field internationally, which is 
helpful to companies with active CSR programs. According to one 
company, laws such as the Foreign Corrupt Practices Act has had a 
positive impact on the company's CSR activities by enhancing the 
visibility of CSR and helping to raise standards of transparency and 
governance. Similarly, customs legislation that set minimum criteria 
allows the company to discuss CSR standards with its suppliers and 
ensures that it is not the only company focusing on these issues, which 
could create a competitive disadvantage. 

Many respondents agreed that government should play a role in promoting 
transparency and disclosure of companies' CSR efforts. Some companies 
strongly supported a federal role in promoting transparency, yet others 
warned against regulation and adverse consequences, for example, if 
U.S. companies face regulatory burdens and are forced to disclose more 
than their foreign competitors. However, some NGOs and investor groups 
supported government mandating that companies disclose information on 
CSR-related issues. 

A majority of respondents from the various groups supported a 
government role in encouraging other governments to enforce their own 
laws and standards related to common CSR issues. A few suggested that 
trade agreements offer an opportunity to encourage other governments to 
enforce CSR standards. 

Some Respondents Want More Coordination among U.S. CSR Activities and 
Greater U.S. Role in CSR Global Leadership: 

Some respondents expressed a desire for more coordination among U.S. 
activities related to global CSR and pointed out that other countries 
are more involved in CSR than the U.S. government. Some noted that 
federal efforts are not well coordinated, which can make it difficult 
for companies to participate in U.S. government activities, and called 
for increased coordination among U.S. government agencies for CSR 
activities. Several respondents also expressed a desire for a greater 
U.S. government role in CSR, stating that the United States is absent 
from world leadership, especially compared with the European Union, on 
this issue. One company wanted the U.S. government to participate in 
the global debate on CSR and to continue its efforts to represent U.S. 
interests in the face of the European Union's more regulatory approach 
to CSR. 

Concluding Observations: 

In my opening remarks, I cited a few of the reasons why firms' efforts 
in the areas of global corporate social responsibility and human rights 
have a potentially significant impact in other countries around the 
world. Globalization has taken many forms, but certainly the operation 
of U.S. firms in other nations is an important element of this trend 
and, for that reason, has a potentially significant role in issues such 
as human rights. We appreciate the opportunity to provide additional 
transparency to the policy debate about the U.S. government role by 
detailing the efforts across many departments that may affect the 
private sector's CSR efforts related to human rights and labor issues. 

This hearing is also timely in that the two recent hurricanes in the 
Gulf of Mexico have demonstrated that, even in the United States, the 
private sector can play a crucial role in responding to disasters. 
Globally, U.S. companies have provided nearly $562 million to relief 
efforts in the wake of the tsunami that hit Asia and Africa in December 
2004.[Footnote 10] While philanthropic activities, such as responding 
to disasters, is only one element of CSR, these disasters lead to 
increased attention and insight into the important roles of the 
government and the private sector in addressing both the immediate and 
longer term needs of persons around the world. 

Mr. Chairman, this concludes my prepared statement. I would be pleased 
to respond to any questions that you or other Members of the Caucus may 
have. 

GAO Contact and Staff Acknowledgments: 

For questions about this testimony, please contact me at (202) 512-4347 
or yagerl@gao.gov. Other major contributors to this testimony were Kate 
Blumenreich, Ken Bombara, Tim Fairbanks, Kim Frankena, and Jamie 
McDonald. 

FOOTNOTES

[1] GAO, Globalization: Numerous Federal Activities Complement U.S. 
Business's Global Corporate Social Responsibility Efforts, GAO-05-744 
(Washington, D.C.: Aug. 8, 2005). 

[2] The Frank Hawkins Kenan Institute of Private Enterprise--Washington 
Center, www.kenaninstitute.unc.edu. 

[3] Adapted from Business for Social Responsibility Education Fund, 
Corporate Social Responsibility: A Guide to Better Business Practices 
(2000). 

[4] For the full list of the federal CSR-related programs we identified 
by agency, see appendix II of our report. 

[5] Virginia Haufler, A Public Role for the Private Sector: Industry 
Self-Regulation in a Global Economy (Washington, D.C.: Carnegie 
Endowment for International Peace, 2001). 

[6] The Millennium Poll on Corporate Social Responsibility, conducted 
by Environics International Ltd. in cooperation with the Prince of 
Wales Business Leaders Forum and the Conference Board. Consumers in 23 
countries were surveyed. 

[7] Christian Aid, Behind the Mask: The Real Face of Corporate Social 
Responsibility, 2. 

[8] Consumers International and Corporate Social Responsibility, 
Consumers International. 

[9] Our selection was not intended to be representative in any 
statistical sense. For more information, see appendix I of our report. 

[10] As of June 8, 2005, according to the U.S. Chamber of Commerce Web 
site, www.uschamber.com.