The Case against a New 'Social Accountability' Code

The voluntary adoption of industry codes or standards, such as the recent quality standard ISO 9000, has a long and honorable history. However, a new effort to impose a "social accountability" standard on private companies is a fundamental departure from the constructive codes previously developed under the International Standards Organization.

The proposed code, SA8000 (SA for social accountability) is a barely disguised attempt by unions and allied interest groups to substitute a new version of regulation for traditional private decision-making.

Developed by the self-appointed Council on Economic Priorities Accreditation Agency (CEPAA), SA8000 is being sold as a way for companies to demonstrate they are socially accountable, by pledging to adhere to a new code of labor relations. Under the proposal, the company adhering to SA8000 would not be accountable for its performance under the code to shareholders or to the public at large--but to labor unions and a variety of special interest groups (the so-called non-governmental organizations, or NGOs).

SA8000 would set stringent labor standards and provide for tough monitoring by auditors certified by CEPAA. Oversight responsibility would pass to unions and NGOs, with shareholders as mere bystanders. SA8000 was developed with the help of union leaders and auditing and certification firms who saw the possibility of a new market for their services.

Although the concept of social accountability may be high-minded, the specific approach taken under SA8000 is quite high-handed. For example, it requires that companies seeking certification as socially accountable not only pledge to abide by the standard, but also to contractually bind their suppliers and subcontractors to do so.

Moreover, SA8000 gives unions much greater powers than they now enjoy under the National Labor Relations Act. Under the proposed standard, union leaders are guaranteed access to their members in the workplace, with management providing the meeting rooms upon request. In addition, employers must extend collective bargaining rights to supervisors and managers.

A company choosing to be certified under SA8000 would have to pledge to restrict many traditional management prerogatives. Overtime would be voluntary except for unusual and unexpected circumstances, such as delay caused by a national disaster. Overtime must always be paid at a premium rate and the total work week must never exceed 60 hours per employee.

Companies would be required to provide a minimum wage far higher than statutory minimums. It must be sufficient to meet what are described as employees' "basic needs" plus the provision of some discretionary income. Auditors reviewing a company's compensation standards are instructed to compare the target company's wages with those at a unionized firm--or to ask local unions and NGOs whether a worker's wages are sufficient to meet "basic needs." Where companies are found to violate this fuzzy standard, they will be asked to develop goals and timetables for reaching acceptable levels. (Does this remind you of affirmative action?)

A company wishing to be certified must make its facilities available for external review and pledge to remedy any "deficiencies" found by the CEPAA-certified auditors. The company that fails to do so may face decertification. SA8000 thus gives extraordinary leverage to private interest groups and unions with a vested interest in finding problems at an employer's facility, whether to generate publicity for themselves or create support for an organizing drive among employees.

The Council on Economic Priorities Accreditation Agency, which seems to be so offended by standard business practices, nevertheless has established a procedure apparently designed to maximize its revenues from its apparently idealistic standard-monitoring activity. Each company must pay $15,000 just to apply for accreditation, and pay an additional $5,000 every three years to renew its status. The auditors it selects must pay $1,400 per person per day to have CEPAA assessment staff observe them during an actual audit, plus $800 in per-diem travel expenses for a full day. CEPAA is also looking to auditing firms for cash: They must pay CEPAA a royalty fee amounting to 1.5 percent of annual revenue from their work on SA8000.

Apparently, second-guessing business can be a good business.

Of course, business can avoid being caught up in this privately sponsored form of arbitrary regulation if they remember the Nancy Reagan approach to drug use: "Just say no."

Murray Weidenbaum is chairman of the Center for the Study of American Business at Washington University in St. Louis.

For more information ...

Social Regulations as Trade Barriers. Well-sounding regulations impede trade and economic growth. (Brookings Review, Winter 1998, 4pp.)

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