Corporate Responsibility: Myth
Otto J. Reich
Assistant Secretary for the Bureau of Western Hemisphere Affairs
Remarks to the International Development Bank (IDB)
on Corporate Social Governance
Miami, Florida. September 23, 2002
an after-dinner speech is always challenging. When Winston Churchill left
government he did what many politicians still do today—traveled around giving
speeches. There is a story that one organization approached the former prime
minister and inquired about his speaking fee for a speech of 30 minutes--he
replied "$10,000". They then inquired how much it would be to speak 15
minutes--he replied "$15,000."
Minister Churchill recognized, it is always a much more difficult task to convey
your message shortly and clearly. Winston Churchill also advised speechmakers
to "Be brief, or be brilliant." I’m afraid you are going to be disappointed on
I am very
honored to speak tonight on the very important subject of the social
responsibilities of corporations. Corporate responsibilities have been much in
the news lately, so this conference is timely. It now seems almost an act of
clairvoyance that leaders of this Hemisphere should have agreed in Quebec, back
in the spring of 2001, that this issue merited an international conference with
the imprimatur of 34 heads of state and government. We can also thank several of
those in this room for making the conference a reality, such as Ambassador Luis
Lauredo, who represented the U.S. in the negotiations leading up to the Summit,
and Ambassador Marc Lortie of Canada, who guided the 34 countries through these
corporate social responsibility? Some people think it is an oxymoron, a
contradiction in terms. This sentiment grew so strong in the 1970’s that the
U.S. Senate Foreign Relations Committee created a Subcommittee on Multinational
Corporations to document the transgressions of MNC’s. Many described it as the
lot of people in Washington do not know the role of business because they’ve
been in businesses; they’ve never worked in the private
sector. The first thing they need to know is that business is in business to
make a profit. Without profit, there can be no employment, no taxes paid, no
contribution to the national economy. So the first social responsibility of a
corporation is to be successful—to make a profit.
making a profit does not a corporation make. There are unfortunately, in our
societies many ways of making a profit which can harm citizens. Narcotrafficking,
kidnapping, and fraud are some examples of organized crime, which unfortunately,
I have been a
businessman myself. And I am a part of a proudly pro-business Administration. I
believe that the corporation does exist first and foremost to make a profit
honestly--to create wealth honestly. The corporate structure has been
instrumental in organizing production efficiently; creating prodigious wealth
and spreading prosperity all over the globe that is the essential role of the
corporation in society, and prudent public policy must recognize and nurture
believe that the corporation and the profit motive are compatible with social
responsibility. Moreover, enlightened self-interest should inform any
businessperson that fulfilling social responsibilities is good for business. A
healthy civil society is a necessary condition for corporate success and the
constructive participation of corporations in civil society is important to the
success of democracy.
rely totally on the participation of their citizens in the political process and
civic life. A corporation is legally defined as a fictional person for purposes
of contracts and other considerations. In Spanish, the term of art is persona
juridical. A person in any society has obligations to others. Those
obligations constitute the structure of civic life. In my view, the social
responsibility of a corporation is, very broadly, good citizenship. And because
we recognize the importance of good corporate citizenship, the United States
supports and encourages corporations to fulfill their social responsibilities
here at home and throughout the Western Hemisphere.
Photo by Eric Draper
President Bush recognizes that the Americas are at a defining moment in their
history, and without belittling the many crises that face us throughout the
region, the President believes that this moment is a historic opportunity with
great promise for us all.
We know that
the future prosperity and security of the United States are bound to that of our
neighbors. Our destinies are linked by the ideals, aspirations and geography
that we share. We in the United States know that we cannot have security here at
home, for example, if the Hemisphere is not peaceful. And our growing commercial
relationships bind the economy of the United States to the region.
sells more to Latin America and the Caribbean than to the European Union. Trade
with our NAFTA partners is greater than our trade with the EU and Japan
combined. We sell more to the Southern Cone common market (MERCOSUR) than to
China. Latin America and the Caribbean comprise our fastest growing export
understanding of our mutual interests highlights our policies in the Western
Hemisphere. For example, the United States encourages U.S. businesses to invest
in the people and communities where they work, as well as uphold the highest
ethical standards. One of the ways we do that is through partnerships between
government, corporations, and non-governmental organizations.
and Corporations Working Together for the Public Good
These public-private partnerships are an effective tool for development. Earlier
this month at the World Summit for Sustainable Development in Johannesburg,
Secretary Colin Powell said that such partnerships between government, civil
society and the private sector are "key to spreading the benefits of sustainable
development as widely as possible."
of this kind of cooperation is the Integrity Pact. By entering into an Integrity
Pact, businesses agree to adhere to transparent commercial practices. We have
found that many corporations are eager to join because it lets everyone know
that a corporation will not be greasing any palms. Consequently, they receive
fewer requests for bribes.
of an ad-hoc government-business cooperation occurred recently when corrupt
practices gave unfair advantages to local firms in a country, the name of which
I will not mention. American companies said that they may have to leave the
country, which would have resulted in the loss of thousands of jobs and
Embassy worked with the businesses to bring their concerns to the government’s
attention at a very senior level. The government created an investment council
to respond, and the conditions improved remarkably.
governments in the Hemisphere are pursuing public-private partnerships as well.
For example, the Brazilian state of Acre has devised a plan with international
organizations and rubber companies that will allow local people to harvest
rubber trees, while sustaining their environment.
Inter-American E-Business Fellowship Program is a Summit of the Americas
initiative. With the help of the U.S. Department of Commerce, participating U.S.
businesses teach professionals from across Latin America and the Caribbean how
to use information technologies. The program is currently in its second year,
and so far, it has been very successful. 11 U.S. companies are participating,
ranging from Bell Helicopter to Bank of America to Wal-Mart, and we are
encouraging more U.S. businesses to become involved. This transfer of managerial
expertise is a direct investment in our neighbors’ stock of human capital, and
we believe that these kinds of investments will pay dividends for the whole
responsible companies know that they can expand their market share, while
sharing their best practices with others. Businesses can disseminate those best
practices through supplier relationships, worldwide company codes of conduct,
and community development programs.
Caterpillar organizes regular "Quality Forums" and "Supplier Days" to discuss
best practices with its suppliers. At ITT Industries in Costa Rica, the
environmental, health and safety standards that are required in the plant are
also applied to local suppliers.
ranging from John Deere to General Electric to Procter & Gamble to Sun
Microsystems have worldwide explicit business codes of conduct. Some of the most
important elements of these practices are provisions protecting the rights of
private sector and civil society institutions all need to encourage the
implementation of internationally recognized labor standards. These codes can be
very effective, if they truly affect the culture and activities of the
corporation. Living by a code of conduct is more than an exercise in public
relations/IT is a challenge that corporate leaders and employees must always
strive to meet.
companies have made direct investments in the Hemisphere’s future.
Daimler-Chrysler established an educational foundation in Mexico that
contributes approximately $2.5 million per year. UPS created a Community
Investment Grant to fund educational programs throughout Latin America.
exchanges, investments in communities, and socially responsible partnerships are
a few examples of good corporate citizenship. Many other companies, perhaps some
are represented in this room, are engaged in similar efforts throughout the
region, and they should all be applauded. But we are not satisfied to rest on
the achievements as significant as they are. We can do better. President Bush
believes that greater integration of the economies in this Hemisphere… more
collaboration between the people of the Americas… will lead to greater
prosperity for all of us.
that trade is the vehicle for that integration, and President Bush campaigned
continuously since his inauguration for the authority to negotiate the trade
liberalizing agreements that will achieve this goal. Recently, the United States
Congress finally granted President Bush Trade Promotion Authority, and the
President has signaled his intention to conclude a free trade agreement with
Chile and initiate free trade negotiations with the nations of Central America
as soon as possible.
efforts will culminate in the Free Trade Area of the Americas (FTAA) agreement,
which would extend a comprehensive free trade area throughout the Hemisphere. We
firmly believe that the FTAA will have a profound and constructive impact on the
We know that
NAFTA has had a beneficial impact on Mexico. Economically, NAFTA ushered in a
period exceptional growth and job creation. That new economic dynamism had
political ramifications as well, unsettling the status quo and providing
momentum for other reforms.
I know that
for many in Latin America today "reform" is a tired slogan. Many believe that
the neo-liberal movement toward democracy and market economies, which has had
such remarkable success in the last twenty-five or so years, is now exhausted,
and some are disenchanted with what their leaders said were democratic
and economic reforms. I believe that where the public has appeared to have lost
its appetite for reforms, they are actually expressing their frustration with
the imperfect implementation of market economies and with the persistence of
corruption, rather than with the models themselves.
When you hear
me speak of corruption in Latin America I am not suggesting that Latin America
has a monopoly on dishonesty. That is not true. The United States has certainly
had plenty of its own corporate scandals lately. But if you look at how the
United States has handled those wrongdoing scandals, you see what the rule of
law can do.
US does not have parliamentary immunity--this summer, Congressman James
Traficant was tried, convicted, and expelled from Congress. And before him,
Senators and Congressman suffered similar fates. We have seen presidents
impeached or resign, and vice-presidents, governors run out of office.
have independent and honest courts, a major accounting firm is facing a $350
million RICO action and several officers of World Com, TYCO and Enron and many
others are about to be promoted to the position of Corporate Vice-President
In-Charge-of-Going-to-Jail….and CEO may mean Convicted Executive Officer to many
former chief executives.
is no perfect democracy or market, as there are no
perfect people. Certainly, we don’t claim to have either. Precisely
because none is perfect, all of us must have as incorruptible institutions as
that corruption, whether by businesses, governments, or individuals is the
biggest impediment to development in the Hemisphere. I am not alone: the World
Bank has identified corruption "as the single greatest obstacle to economic and
International cites various studies indicating the cost of corruption in some
countries in South America is $6,000/capita per year. That is particularly
revolting when you consider that one-third of Latin Americans live on $2 a day.
hits the poorest the hardest. Small businesses pay, on average, more than twice
as much of their annual revenues in bribes than do large firms, according to
World Bank data. And other studies by the World Bank show that the higher the
level of corruption, the higher infant mortality tends to be. Likewise, the lack
of the rule of law is tied to lower literacy rates.
this be of any interest to the United States? What business is it of ours? Why
are we trying to impose our values on others?
us because the freedom and prosperity of our neighbors concerns us. Because
there are some universal values such as the desire to build a better world, to
leave it a better place for future generations, Because we have geographic,
historic, cultural, political, ethnic, even familial ties with this hemisphere,
and we want our hemispheric family to be healthy, educated and friendly. So even
if we had no reason other than purely selfish commercial reasons, we would want
to eliminate corruption, so our neighbors can be prosperous and contribute to
because corruption costs the American taxpayer in many ways. The U.S. Dept. of
Commerce estimates that competition by U.S. firms for 60 contracts worth $35
billion may have been affected by bribery of foreign officials just in one-year
period from May 2001 through April 2002. Of these 60 contracts, U.S. firms are
believed to have lost nine contracts worth $6 billion. Regardless of what you
may think of the corporations themselves, you Now, some you may say to
yourselves, you have to realize that if those contracts were not awarded fairly,
then those billions of dollars of were misspent and did not contribute to any
undermines not just economics, but, as I said to earlier, democracy as well.
Transparency International Chairman Peter Eagan stated, "In parts of South
America, the graft and misrule of political elites have drained confidence in
the democratic structures that emerged after the end of military rule."
Bank reviewed the 2002 Corruption Perceptions Index stated that the "most
worrisome" regional trend was "the notable deterioration in Latin America and
Caribbean over the past two years. According to the 2002 Latinobarómetro, 80% of
those Latin Americans surveyed said that corruption has increased in recent
years. Not surprising these trends have been accompanied growing dissatisfaction
on the part of Latin Americans with their leaders, even their system of
The OECD and
United Nations Commission on Trade and Development, recognizing the direct
impact of corruption on economic growth, development, and trade, have for years
fought bribery and corruption. One of the keys to attracting foreign investment
is judicial transparency.
States Government feels that fighting corruption is so important that we have
made it a part of how we provide economic assistance. The President’s Millennium
Challenge Account, announced at the IDB and just last March in Monterrey, Mexico
will require commitments to political, economic, and social progress. President
Bush has asked Congress for $5 billion for this new fund. It will be used only
in those countries that root out corruption, uphold human rights, and invest in
social programs such as health and education.
some in the Hemisphere who are already making great strides. We fully support
President Bolanos of Nicaragua in his battle against corrupt politicians who are
protected by parliamentary immunity.
It is no
accident that Chile, the nation with the highest rate of economic growth in the
hemisphere in the past 15 years, is also the most transparent. In Mexico,
President Fox is leading a charge against the decades of abuse that have
corroded the Mexican people’s faith in their government.
governments of Honduras, Bolivia and Costa Rica have pledged that they will
fight corruption across the board. Much of El Salvador’s remarkable economic
growth is due to consecutive honest governments since the end of the war in
1992, especially that of the courageous President Flores.
arrested a banking magnate on fraud charges. This is just one example of that
small country’s large contributions to this hemisphere’s fight for honesty.
investigating corruption in the Finance Ministry that allegedly went all the way
to the Minister himself.
more examples, to numerous to mention. We are further encouraged by the fact
that 27 out of 34 nations in the hemisphere have ratified the OAS Convention
Against Corruption, promising to clean up their systems.
States will support our neighbors in their efforts to fight corruption, and we
will help them keep their promises that the theft of the people’s treasure and
trust will stop. We will continue to deny or revoke visas to this country to
private or public figures that have broken the law. And if they are already here
and we have reason to believe that they have ill-gotten gains in this
country we will work with our domestic law enforcement agencies to pursue all
legal avenues of recovering those assets and sending the proceeds back to the
people of the countries from whom they were stolen.
I could not
reach this point in my remarks without mentioning the most blatant example of
corporate social irresponsibility in this hemisphere—the one country where
corporations operate without any apparent social conscience and where the
government has misappropriated all the means of production—Cuba.
inconceivable to the Bush Administration how companies who abide by labor,
environmental, and other rules in their home countries can take advantage of a
captive population with no freedom of movement, speech, association or any
other. Not only are these companies not contributing to opening the system, they
are perpetuating tyranny. And when the Cuban people rejoin the family of
democratic nations, they will remember those who stood with them and those who
did business with their oppressors.
would like to conclude by recognizing again the important contributions that
corporations make to our lives. They are the most efficient instrument of wealth
creation around the world, and it is vitally important that we nurture that
role. But corporate officers cannot believe that they are above the obligations
of a citizen to society. To the contrary, corporate leaders should recognize the
disproportionate importance of their fulfilling those responsibilities to our
Social responsibility is not a contradiction in terms—it is however only one
element of a series of responsible actions by governments, individuals, and
companies that leads to prosperity in free societies. We all have a role to play
in that chain of events, whether as representatives of government NGO’s,
business, IFIs, MDBs, or civil society.
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September 30, 2002