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Article Excerpt
In an age of globalization, there is a growing perception that state regulatory instruments may be an inadequate means of regulating firm conduct. Increasingly, scholars are evaluating how corporate codes of conduct may operate as regulatory mechanisms. This article examines competing codes of conduct in the forest sector. Through a detailed case study of code adoption, innovation, and diffusion in the forest sector, focusing on mechanisms of vertical, horizontal and competitive diffusion, it is found that non-governmental organization (NGO) codes have placed competitive pressure to adopt higher standards on competing schemes. However, NGO schemes have been limited in constructing fluid markets for their own goods. The article examines which strategies for codes regimes are most likely to diffuse high standards throughout contemporary markets.
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In an age of economic globalization, there is a growing perception that a truly comprehensive regulatory framework will benefit from regulation of and by non-state actors. In particular, corporate codes of conduct, though controversial, are increasingly viewed as mechanisms for enforcing standards, even as there remains significant contention surrounding issues, such as who should be responsible for drafting, implementing, and monitoring compliance.
Most academic analysis of codes has focused on apparel and footware. This article examines the forest sector where brand names are only loosely associated with final products. For example, most consumers who purchase lumber, veneer, paper boxes, paperboard, news or magazine paper, laser printer paper, cabinets, or furniture, are unaware of the producer's brand name. Nevertheless, codes of conduct and standard setting/certification have become central to production in the forest sector in the last 10 years. This article develops a case study of differing codes and of retailers' experience with codes in the forest sector. I use the case as an opportunity to assess competing codes, focusing on their capacity to engender deliberative standard setting, democratic governance, and capacity for market diffusion.
PERSPECTIVES ON STANDARD SETTING
As the governments of advanced economies across the world take stock of past environmental policies, an image of mixed success emerges. The past 30 years has shown the value of state regulatory bureaucracies in setting environmental standards and enforcement regimes (Hahn, Olmstead and Stavins 2003; Kettl 2002). However, much as in the labour arena, increasingly questions are raised about the equity, efficiency, and democratic character and effectiveness of state standard setting and other forms of standard setting such as unions and collective bargaining (Coglianese and Nash 2001; Fung, O'Rourke and Sabel 2001).
Many critiques of state policy instruments have pointed out that while state-led regulation has been effective at reducing some degradation levels, it has not been considered equitable--providing too much protection in some cases and not regulating enough in others (see Hahn, Olmstead, and Stavins 2003 for a recent review). Others are dissatisfied with the degree of government enforcement and monitoring of policy administration (Beierle and Cayford 2002). As the costs of environmental improvement rise, it is likely that issues regarding these efficiency, distributional, and democratic legitimacy issues will become more acute (Hahn, Olmstead and Stavins 2003). Increasingly, "second-generation" policies have governments looking toward regulatory models which depend on rewarding voluntary, self-regulation. Yet, as in the case of labour or human rights areas, in the environmental arena, these efforts have been controversial at best, with many activists and academics questioning whether voluntary efforts will ever amount to more than public relations campaigns or window dressing (Coglianese and Nash 2001; Kettl 2002).
Codes of conduct are recognized as a new "second generation" or "third way" institutional trend, yet there is substantial concern over whether these forms are merely devolving power away from legitimate actors such as the state and trade unions to decentralized markets actors such as industry, or unaccountable civil society groups such as non-governmental organizations (NGOs) and their political tactics, including public shaming, protest and standard setting (Compa 2001). Some ask whether these decentralizing strategies for setting standards can be more effective, legitimate or democratic than state regulation or collective bargaining (Compa 2001; Sabel, O'Rourke and Fung 2000).
This article presents a case study of differing codes and of retailers' experience with such schemes in the forest sector. I use the case as an opportunity to assess competing codes, focusing on their capacity to engender deliberative standard setting and democratic governance. However, in order for deliberative standard setting and democratic governance to effect fundamental change in the social organization of production, it is also important for social innovations to diffuse widely in markets. The case illustrates a number of innovative institutional attempts by the NGO community in response to create strategies for constructing more fluid markets in certified goods. I find that NGO strategies for certifying high-standard coded products are valuable in that they promote deliberative and democratic governance, significantly changing the procedural justice by which decisions are made, as well as promoting highly principled substantive norms, but limited in constructing markets for certified goods. Such a market construction refers to the capacity of NGO schemes to create a critical mass of certified supply. I find that in order to diffuse codes more successfully, vertical, horizontal and competitive elements or sites of economic coordination are particularly important. Monitoring these horizontal, vertical and competitive experiments across labour, human rights, and environmental arenas is important because it is only by identifying the effective means of diffusing high-standard practices that codes of conduct might fundamentally transform the nature of contemporary economic organization.
CONSTRUCTING SOCIALLY RESPONSIBLE MARKETS
While devising deliberative, effective, and legitimate fora for setting and monitoring labour and environmental standards is important, it is also important for social innovations to diffuse widely in markets in order for them to effect fundamental change in the social organization of production. As such, I argue it is important to view the operation of codes of conduct and standard setting from the perspective of their capacity to make or construct markets in socially responsible goods for at least two reasons.
First, often codes research to date has framed the problem of the social regulation of the firm by taking as its unit of analysis adoption of individual company codes or standards (see for example, Cowton and Thompson 2000). Yet, such selective application of particular codes is likely only to transform production in a piecemeal fashion, as firms which choose to avoid risks by seeking socially responsible product marketing or have brand names to protect, take up higher standards. This, in turn, suggests that the democratizing potential of standard setting schemes might be quite limited. Second, there are theoretical and empirical alternatives to seeing codes as isolated, piecemeal focal points of analysis. These alternatives point to three important mechanisms by which markets may be transformed and codes diffused: horizontal, vertical and competitive diffusion.
Horizontal Diffusion
Some scholars look at the effect of standard setting and diffusion at the level of analysis of industry sector, i.e., they look at the adoption of standards or codes and monitoring regimes horizontally by whole industries, just as and for similar reasons as some union strategists prefer that labour standards be set at the sector level. Rees (1994, 1997) and Gunningham and Rees (1997) note that, theoretically speaking, industry-based schemes might offer significant organizational advantages for increasing the diffusion of coded practice broadly across members of an industry. In such cases, it has been argued that the effects of joint dialogue and peer pressure from within the membership of an industry sector can facilitate horizontal pressure on firms in an industry to adopt a standard. By virtue of reputation being shared as a "collective good" among industry members, such schemes are argued to provide communicative environments in which collective actions problems can be overcome (King, Lenox and Barnett 2001; King and Lenox 2001). These fora also afford means for industry leaders to exert leverage on industry laggards, potentially overcoming the ever-present risks of free riders (Gunningham and Rees 1997). Finally, by potentially increasing the information available to outside actors--i.e., increasing the transparency of the industry to outsiders--the industry-wide standard schemes have been argued to increase the public's leverage in seeking to hold industry accountable (Gunnigham and Rees 1997; Keck and Sikkink 1998; Ayers and Braithwaite 1992). Thus, taking an industry-wide unit of analysis addresses some aspects arguably important to constructing markets that might extensively transform production. If whole sectors or industries adopt particular codes schemes, the leveraging, internal and external actor peer pressure, and spreading the risk of first movers may increase the adoption and diffusion of coded goods.
Vertical Diffusion
There are also important forms of coordination that can be applied to encourage vertical diffusion between retailers, producers, and suppliers that can serve as a basis for reorganizing the supply chains, or vertical component of a market (Fung, O'Rourke and Sabel 2001; Gereffi, Lorzeniewicz and Korzeniewicz 1994; Porter 1990). As Porter (1990: 41) writes, a supply chain "is an interdependent system or network of activities, connected by linkages. Linkages occur when the way in which one activity is performed affects ... other activities." As Gereffi (1994) suggests, both large retailers (in buyer-driven...
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