Holding Multinational Corporations Accountable: Is Non-Financial Disclosure the Answer?

Abstract

Holding Multinational Corporations (MNCs) accountable for business activities in foreign countries is an ongoing concern as the world continues to shrink. There are currently over 70,000 transnational firms with approximately 700,000 subsidiaries and millions of suppliers around the world. This accumulation of power and global reach has brought increased attention to the corporate community. Since 1990, the world has seen the establishment of more than 10,000 new citizens’ groups. From poor working conditions to complicity in human rights violations, there has been no shortage of newsworthy corporate activities provoking public outcry. Despite a lively debate about corporate accountability and numerous proposals to ameliorate the situation, a solution has yet to surface. Some commentators argue that non-financial or corporate social responsibility (CSR) reporting provides such a solution. Proponents claim that non-financial reporting by companies will improve not only corporate actions, but also enable shareholders and stakeholders to make better and more informed choices. One commentator maintains that disclosure provides a way for governments to assure control of corporate abuse and promote the public interest. Others propose that stock exchanges should mandate non-financial disclosure and enforce attendant standards. Some commentators argue the business case for disclosure, pointing to the importance of long term corporate sustainability. Non-governmental organizations (NGOs) are an active voice encouraging increased transparency. In addition, investors have called on companies to voluntarily disclose social and environmental information. This note evaluates the use of non-financial disclosure as a way to improve corporate activities that impact our society and the environment. The subsequent evaluation illustrates that corporate disclosure of social performance has limited impact on improving how companies conduct business abroad. Ultimately, recognizing the limits of non-financial disclosure is a step toward developing a meaningful way to hold companies responsible for activities on foreign soil.