• Home
  • Business
  • Self-regulation of human rights responsibilities of multinational corporations is no effective substitute for state sponsored regulation. Discuss.

Self-regulation of human rights responsibilities of multinational corporations is no effective substitute for state sponsored regulation. Discuss. Essay Example

  • Category:
  • Document type:
  • Level:
  • Page:
  • Words:


Self-Regulation of Human Rights

Self-Regulation of Human Rights


The operations and activities of multinational corporations across state borders are increasingly vital part of current global economic activity. Self-regulation is considered an essential part of today’s global economy (Haufler 2001, p. 161). Multinational corporations have relied on self-regulation processes in governing their industry practices and address some issues ranging from instituting industry standards to applying codes of ethics and ensuring consumer confidence (Slot and Bulterman 2004, p. 17). However, despite the widespread use of self-regulation, a number of policy makers doubt the efficiency of self-regulation especially when it comes to protecting consumer rights and privacy. Normally, when we contemplate about regulation of multinational corporations, we ask two main questions: why should we regulate business operations and how should we regulate? The questions invokes validation for external and internal interference of the free contracting process within corporate actors, whether corporations should follow particular mandatory rules or be provided with mere guidelines on rule choice (Haufler 2001, p. 162). In this essay, I will address scepticism of self-regulation by explaining how self-regulation works, its limitations and the advantages state regulation has over self-regulation, drawing a conclusion from my arguments and discussion on the regulation approach multinational corporation should use.

Industry self-regulation and how it works

Industry self-regulation involves a process whereby a business organisation monitors and controls its adherence to legal, safety and ethical standards in place of an external, independent agency like a third party entity that monitors and enforces such standards (Flohr 2014, p. 50). Self-regulation acknowledges the act of acceptance of ethical, human rights and safety responsibility by multinational corporations that they ought to promote the public good (Haufler 2001, p. 163). Self-regulation is justified with regard to economic, political and social concepts. The economic objective of self-regulation is to reduce the expenses of regulation while the political goal is concerned with participation of citizen in government. On the other hand, the social objective of self-regulation is to coordinate economic, social and political goals. Self-regulation code of conduct does not impose any legal obligations upon an organisation to comply with any set human rights and environmental accords (Flohr 2014, p. 55). Multinational corporations have chosen self-regulation due to lack of government regulation addressing sustainability of natural resources or may be implemented in order to address catastrophic events. Self-regulation activities take place through self-regulatory organisations that set standards, enforce regulations and rules and monitor for compliance. The SROs operate with authorization from the government.

Advantages of self-regulation implementation by multinational corporations

Self-regulation is said to generate a number of benefits. It is cheap and has no direct cost on a country’s treasury since the market players pays the amount required for its own regulation (Faur 2011, p. 259). Adding to the cost benefits of self-regulation, it has vibrant potential regulatory benefits. First, it is considered a way of addressing acute knowledge and information irregularities that affects the relationship between the supervisory body and regulated community. Market players understand the issues generated by regulated activity and understand the importance of counteracting such issues through regulation. On the other hand, state regulators have partial understanding of regulated activities and are thus likely to come up with sub-optimal regulation that do not solve the issues in question and more so impose unnecessary expenses on such activities (Faur 2011, p. 259). In addition, self-regulation can also respond fast to new systems of activity that needs regulation. This is because self-regulation can detect a problem earlier as it is not constrained by procedures and checks associated with state action through legislation or authorised regulator (Faur 2011, p. 260).

Limitations of self-regulation implementation by multinational corporations

Although self-regulation has a number of benefits, its costs have been potentially explored. Self-regulators most of the time abuse its position and knowledge advantage to develop rules that boost its welfare situation at the expense of the affected parties with no control over the rules enforcement process (Price and Verhulst 2005, p. 152). State regulators are however not immune from such actions but are thought to be more able to resist pressure especially from market constituent and are able to develop rules that are less biased in favour of the affected parties. In addition, self-regulation is voluntary with no binding instruments (Aligica 2008, p. 169). Corporations cannot be held accountable for violating them and the implementation of such codes lies entirely on the corporation. And at the best, such corporation can be forced to institute such codes through moral persuasion or public pressure. Also, despite the many years of existence of self-regulation, the number of corporations implementing it is still very small. Moreover, self-regulation is limited to a few sectors and a good number of other sectors are still outside the realm of such corporate codes (Aligica 2008, p. 169).

Many codes of conduct of the self-regulation are not collectively binding on all the available operations of a corporation such as its contractors, subsidiaries, franchisees to name a few. Codes also rarely cover the workers of the informal sector who are important part of an organisation’s supply chain (Jenkins, Pearson and Seyfang 2002, p. 104). Furthermore, a corporation may institute one type of code while neglecting the others. For instance, they may implement an environmental one and neglect other codes such as those related to labour protection and safety. Besides, the mushrooming of self-regulation codes in the current era of deregulated business has raised concern about their efficiency. Self-regulation codes are misused to deflect public criticism and reduce ultimatum for state regulation of multinational corporations. In some situations, such codes have worsened working environment and bargaining power of various labour unions. Also, the implementation of self-regulation codes has remained problematic since information about such codes is not available to workers and consumers (Jenkins, Pearson and Seyfang 2002, p. 104). Self-regulation has been introduced in the multinational corporations without the knowledge and consent of the workers.

Why state Regulation?

It cannot be repudiated that the fundamental duty and responsibility of regulating behaviour of multinational corporations remains with the states (Deva and Bilchitz 2013, p. 88). It is hardly possible to envision the regulation of corporations without active involvement of the nation states. Therefore, state regulations are the central vehicles for local, national and international government and institution to implement public policies (Deava and Bilchitz 2013, p. 103). The government has the responsibility of protecting the social, environmental and economic conditions of all citizens especially the more vulnerable ones. Typically, states are not entirely democratic and their supervisory mechanisms are often weak and non-functional (Somin 2013, p. 3). Nevertheless, despite these issues and inadequacies, states remain lawfully liable to their citizens while the corporations are only liable to their stakeholders. State regulation is very important for the advancement of transnational capital. Investment decisions by the multinational corporations are not always impacted by national liberalization but are governed by the state regulations in diverse frameworks such as taxation, labour, currency, trade etc.

A stable economic and political surrounding is a vital determinant. Multinational Corporation depends on legislative and judicial institutions to protect and enforce laws and provide social, political and economic stability (Woojin 2013, p. 51). In the absence of state regulation structure, contemporary globalization would not have occurred. State regulations are also used to solve social and political conflicts and correct market failures. Also, in the framework of global capitalism, the states provide legal structure within which markets operate (Jenkins 2001, p.70). The concept of a ‘free market’ is a myth brought about due to state regulation. Even the much claimed self-regulation would lack legitimacy if not backed by a government decree.


Multinational corporations have relied on self-regulation processes in governing. However, despite the widespread use of self-regulation, I would say that it has more limitations than benefits. Self-regulation can never be a substitute for state regulation. At best, self-regulation can complement state regulations by providing opportunities to solve environmental, health and other public interest issues. Self-regulation would lack legitimacy if not backed by a particular government decree. In fact, it is hardly possible to conceive contemporary globalisation without laws that are not found outside the realm of the nation-states. Therefore, self-regulation of human rights responsibility of multinational corporations is no effective substitute for state sponsored regulation.


Aligica, P. (2008). The challenge of business self-regulation: revisiting the foundations. International Journal Of Business Governance And Ethics, 4(2), 169. http://dx.doi.org/10.1504/ijbge.2008.019174

Deva, S. & Bilchitz, D. (2013). Human rights obligations of business : beyond the corporate responsibility to respect. Cambridge: Cambridge University Press.

Deva, S. & Bilchitz, D. (2013). Human rights obligations of business : beyond the corporate responsibility to respect. Cambridge: Cambridge University Press.

Faur, D. (2011). Handbook on the Politics of Regulation. Cheltenham: Edward Elgar Pub.

Flohr, A. (2014). Self-regulation and legalization: making global rules for banks and corporations. Basingstoke: Palgrave Macmillan.

Haufler, V. (2001). A public role for the private sector industry self-regulation in a global economy. Washington, D.C: Carnegie Endowment for International Peace.

Moon Woojin,. (2013). The Effects of Legislative Institutions and Party Discipline on Policy Stability: A Comparative Analysis. Korean political science review, 47(6), 43-70. http://dx.doi.org/10.18854/kpsr.2013.47.6.003

Price, M. & Verhulst, S. (2005). Self-regulation and the Internet. The Hague Frederick, MD: Kluwer Law International Sold and distributed in North, Central and South America by Aspen Publishers.

Rhys Jenkins, (2001). Corporate Codes of Conduct: Self-Regulation in a Global Economy, UNRISD, Geneva, p. 70.

R. Jenkins, R. Pearson and G. Seyfang, (2002). Corporate Responsibility and Labor Rights: Codes of Conduct in the Global Economy, Earthscan Publications Ltd., London, p. 104.

Slot, P. & Bulterman, M. (2004). Globalisation and jurisdiction. The Hague: Kluwer Law International.

Somin, I. (2013). Democracy and political ignorance why smaller government is smarter. Stanford, California Philadelphia: Stanford Law Books, an imprint of Stanford University Press, University of Pennsylvania Press.