Global governance: the case of global nongovernmental regimes.
As more corporations span the globe, they run into problems of
ethics and conduct with the same dimension. How can these problems be
addressed when no country has jurisdiction? In many cases, industries
are forming self-regulating regimes that adopt operational guidelines,
codes of conduct, reporting, and perhaps certification schemes. Among
numerous examples, the authors concentrate on two: the Kimberley.
Process, a U.N.-mandated program to certify rough diamonds as
“conflict-free,” and the
, involving the
social environmental challenges faced by’ banks engaged in
. These regimes help illustrate the strengths and weakness of
various organizational and operational challenges faced by such regimes
regarding codes of conduct, ethical values, accountability mechanisms,
administrative structures, decisions-making, and governance.
Partly in response to pressure from activist
n. a person having in his/her possession (holding) money or property in which he/she has no interest, right or title, awaiting the outcome of a dispute between two or more claimants to the money or property.
perhaps industry recognition of the imperatives of global
, global corporations continue to devise collective
governance mechanisms in the form of codes of conduct and industry
guidelines for regulating their behavior. Such collective action has
been manifested in the formation of voluntary, nongovernmental
regulatory associations or regimes constituted by firms seeking to
control their collective action or regulate member behavior in specific
issue-areas. Industry self-regulation has been defined as a regulatory
process whereby an industry-level, as opposed to government- or
firm-level, organization sets and enforces rules and standards
relate prep →
relate prep → ,
the conduct of firms in the industry (Gupta and Lad, 1983).
Self-regulation can be effected through initiatives such as codes of
conduct, reporting activities, and certification schemes (Albadera,
2008). Unlike industry self-regulation by firms in a specific country,
global self-regulatory regimes are transnational and involve firms from
different countries agreeing to a global code of conduct in all the
markets in which they do business.
Compared to global industry regimes, industry self-regulation has a
longer history at the national level. In the U.S. for example, there has
long been self-regulation in the advertising industry (Neelankavil and
Stridsberg, 1980). What has changed in the last decade or so is the
extension of industry self-regulation to the global level and the birth
of global nongovernmental industry based regimes. For example, the
global chemical industry adopted guidelines after the Bhopal chemical
disaster in India. Building on the awareness that emerged out of that
crisis, the chemical industry’s voluntary initiative called
Responsible Care has been embraced by chemical associations in 46
countries manufacturing 85% of the world chemicals (
, 2002; King and
Lenox, 2000). The
officially the Protocol on Substances That Deplete the Ozone Layer, treaty signed on Sept. 16, 1987, at Montreal by 25 nations; 168 nations are now parties to the accord.
is another example of corporate
response to environmental issues. Its core provisions are aimed at
reducing or eliminating
(CFCs), organic compounds that contain carbon, chlorine, and fluorine atoms.
that are said to damage the
or region of the stratosphere containing relatively high concentrations of ozone, located at altitudes of 12–30 mi (19–48 km) above the earth’s surface.
. More recent nongovernmental regulatory regimes
include the Equator Principles, a voluntary set of guidelines developed
by banks engaged in project financing for managing the social and
environmental issues related to development projects they finance
, 2003). In addition, the Kimberley Process, a
U.N.-mandated program of collaboration between industry and government
aims to create a certification system for rough diamonds to exclude
“conflict diamonds” from the legitimate diamond trade. Despite
their attractiveness, self-regulatory regimes are notoriously difficult
to manage. The normative literature on collective action (Olson, 1965;
Ostrom, 1990) predicts that self-organized attempts at collective action
are not easy. This paper presents a framework for structuring global
self-regulatory regimes to increase their effectiveness.
Collective action at the global level is important because issues
such as the environment and sustainability are often linked on a global
scale (Brundtland, 1986). Global corporate response is needed because it
signifies stakeholder ownership of the problems associated with business
activities. Collective industry action may be well intentioned, but its
effectiveness has been questioned, mainly because of the voluntary
nature of such arrangements (Gereffi, Garcia-Johnson and Sasser, 2001;
Gupta and Lad, 1983; Finer, 2003). Although there are some documented
accounts of successful self-regulation-at least at the national level-in
such resource management areas as fisheries and forestry (Stevenson,
1991, Ostrom, 1990), the evidence generally points to a weak success
record of industry self-regulation, even at the national level. The
challenges of achieving effective self-regulation at the global level
are even greater. Indeed, the diversity of actors and issues means that
problems of domestic self-regulation may become exponentially magnified
in global settings In fact, unraveling the complex issues of effective
global regimes would require broadening the scope of our understanding
to include pertinent issues related to the structuring of global
industry regimes to ensure their effectiveness. For example, we need to
understand what effects, if any, the scope of such agreements have on
their effectiveness. As a transnational regime, issues of administration
and the nature of individual firm commitment and how that affects the
success or failure of the regime require examination.
These issues and conflicting perspectives on the preconditions for
effective self-regulation raise one key imperative that we address in
this paper: How can voluntary global self-regulatory regimes be
structured for stability? First, the nature of self-regulation is
briefly examined, including the motivations for formation. Second, we
examine the nature of global self-regulatory regimes and the likely
challenges they will face. Third, we present a framework for structuring
global industry regimes for their effectiveness. The arguments are
explored drawing on two recent examples of nongovernmental regulatory
regimes: the Equator Principles and the Kimberley Process. Finally, some
suggestions for practice are offered. This research makes an important
contribution to our understanding of global regimes by presenting a
framework for structuring regimes for stability and performance. In so
doing, it fills an important gap in the sparse literature on global
Nature of Self-Regulation
1. As stated or indicated by; on the authority of:
2. In keeping with:
Wotruba (1997), self-regulation, in its broadest
sense, involves planning and policy-making regarding organizational
issues and activities
Health care adjective Referring to a procedure, test or other health service to which a policy holder or insurance beneficiary is not entitled under the terms of the policy or payment system–eg, Medicare. Cf Covered.
by public regulation. Hemphill (2002)
suggests that self-regulation exists when a firm or industry establishes
its own standards of behavior where no such statutory or regulatory
requirements exist, or when such standards assist in complying with or
exceeding statutory or regulatory requirements. Self-regulation can be
mandatory when it is initiated by the government (Ashby et al., 2004),
or voluntary when it covers behavior that is discretionary. In its
broadest sense, self-regulation makes clear what standards of behavior
are sanctioned. Since voluntary codes often have no enforcement
mechanisms, they can be unstable and subject to
n. pl. id·i·o·syn·cra·sies
1. A structural or behavioral characteristic peculiar to an individual or group.
2. A physiological or temperamental peculiarity.
interpretations by members (Grose, 1992), and the cooperation of members
is important if the arrangement is to be effective. Hemphill (2004)
observes that self-regulation at the industry level usually takes place
under the administration of an industry or professional association
sharing a common product, service, or method of business. Hemphill notes
that sometimes a “dedicated”
by the industry to implement and monitor a code of conduct.
Industry actors may design self-regulatory regimes for both
proactive and reactive reasons. Self-regulatory regimes may emerge as a
means for avoiding costly government regulation (Lenox and Nash, 2003),
as well as to counter a negative public image and protect the reputation
of an industry (Haufler, 2001). Wotruba (1997) cites the example of the
industry in the U.S. as an example of a self-regulatory
regime set up to improve its negative image and
tr.v. fore·stalled, fore·stall·ing, fore·stalls
1. To delay, hinder, or prevent by taking precautionary measures beforehand. See Synonyms at prevent.
intervention. Industry actors may also use self-regulatory regimes as
strategic tools by setting high conduct standards to discourage
potential industry entrants or proactively use codes of conduct
associated with industry regimes as a way to control the behavior of
company employees whose dealings with customers offer tempting
opportunities for ethically questionable actions.
Global Self-Regulatory Regimes
Wotruba (1997) was one of the first to extend the concept of
self-regulation from the national level to the global domain using the
Direct Selling Association
(DSA) and its European regional groups
as an example of a global self-regulatory regime. The DSA developed a
code of conduct as part of its self-regulatory regime in response to
public outrage at some of the industry’s practices. The European
regional DSAs also had codes of conduct until unified world codes were
approved for the industry in May 1994. Although the global code allows
each national DSA to modify the provisions of the code to meet the
requirements of national law, the general provisions of the code were
made supralegal (World Federation of Direct Selling Associations, 1994).
Supralegal codes are those containing statements stipulating behavior
above and beyond the minimal standards required by law.
The DSA industry regime is an example of global regimes that
emerged in the U.S. and spread globally. However, global industry
regimes can emerge from their inception at the
global regimes can occur when firms in global industries, such as
international banking, engage in collective action around an issue.
(sooh-ee jen-ur-iss) n. Latin for one of a kind, unique.
global industry regimes can be conceptualized as institutions
that emerge among those interested in specific issue areas with global
dimensions. Global political and social regimes have a long history in
political science where nations have often come together to address
specific issues (Young, 1982). Regimes arise because participants share
a common understanding of a particular issue. Global regimes often arise
because of the realization that individual, narrow, self-interested
behavior by actors in an issue area will lead to undesirable outcomes.
They may also emerge for some of the same reasons mentioned earlier. For
example, the Kimberley Process responded to stakeholder criticisms of
the international diamond trade and its contributions to civil wars
Much like domestic regulatory regimes, the success of global
industry regimes cannot be
taken for granted
for a number of reasons.
First, all regimes face the possibility that some firms will
responsibility under the regime when it is in their self-interest (King
and Lenox, 2000). This is especially the case in the absence of
mechanisms to ensure compliance. Second, there is always the possibility
1. denoting a microorganism which does not ordinarily cause disease but becomes pathogenic under certain circumstances.
behavior because some firms may adopt regime standards
symbolically to gain social legitimacy without making any attempts to
adopt or implement the norms expressed in the code (Abrahamson and
Rosenkopf, 1993; King and Lenox, 2000). This sort of
squire’s wife matchmakes with money in mind. [Br. Lit.: Doctor Thorne]
shrewdly and unscrupulously becomes merchant prince. [Yiddish Lit.
consistent with the well-known free-rider issue in industry collective
action (Shiell and Chapman, 2000; Ashby et al., 2004). Free-riders
benefit from the compliance of other firms in the regime regardless of
their own behavior. Indeed, in King and Lenox’s (2000) study of the
Responsible Care Program, the chemical industry regime showed that
opportunism is always a threat in regimes. Third, self-regulatory
regimes face the challenge of enforcement, or making sure that regime
actors respect the provisions of the code.
Recent Examples of Global Regimes
). (See appendix).
Launched in January 2003 and currently counting close to 70 member
countries, the KPCS is an international certification scheme that
requires any shipment of rough diamonds to or from a participating state
be accompanied by a Kimberley Process certificate guaranteeing that the
rough diamonds are “conflict-free.” The regime is made up of
governments and the global diamond industry. To support the KPCS system,
the diamond industry committed to a system of self-regulation including
the following: establishing a code of conduct to prevent trade in
conflict diamonds; implementing a system of warranties requiring that
all invoices for sales of diamonds warrant in writing that the diamonds
are conflict-free; keeping records of warranty invoices and having these
audited; and informing company employees of government regulations and
industry policies to prevent the trade in conflict diamonds. The KPCS
requires each participant to pass
procedures and to prevent the entry of conflict diamonds into legal
The Equator Principles (EP). (See appendix). Started in December
2003 and revised in December 2006, the Equator Principles are a
voluntary set of guidelines for managing environmental and social issues
in project finance lending. Initially applied to investments with
capital costs above U.S. $50 million, they have just been revised ($10
million is now the threshold) to ensure that more projects are subject
to these baseline environmental and social standards. Adopting
institutions are required to
the Principles, including: (1)
Categorizing projects in terms of the magnitude of social and
environmental effects; (2) Undertaking a full social and environmental
assessment; and (3) Developing and implementing an environmental
management plan based on each assessment. The Principles were developed
with the International Finance Corporation’s advice and guidance
and reflecting its environmental and social standards. As of December
2008, 64 banks had adopted the Principles, and they now cover an
estimated 80% of global project lending
While both regimes have recorded impressive results, both are
plagued by some of the well-known problems associated with industry
regimes, including some already mentioned.
Structuring Global Self-Regulatory Regimes for Performance
The framework presented here includes key structural, operational,
and behavioral mechanisms that are hypothesized to affect regime
stability and performance. They include (1) the character dimensions of
the regime, (2) the strength of the regime measured by the degree of
commitment to the principles and the code of conduct that guides actors
in the regime, (3) the accountability mechanisms associated with the
regime, (4) administrative and decision-making structures of the regime,
and (5) the regime governance mechanism.
Character dimensions of a regime
The guidelines and behavioral norms associated with a global regime
are often expressed in its code of conduct. How an industry code is
articulated reflects its character, and the code of conduct that
regulates member behavior in a global regime may be an important
a polynomial expression that is inherent in the entries of a square matrix. The size n of the square matrix, as determined from the number of entries in any row or column, is called the order of the determinant.
of its stability. Character as used here refers to the
scope, clarity, and coherence of the regime.
An important character dimension of a code of conduct is the scope
of issues that it covers. Manley (1991) noted that the scope of a regime
can vary from very narrow and selective to broad and comprehensive. A
comprehensive code of conduct covers a wide range of issues while a
narrow and selective code focuses on a few issues. It may be more
difficult for regime actors to agree on a broader code than a narrow one
(Wotruba, 1997), because finding agreement on common language and
behavioral dimensions may prove more contentious the broader the scope
of the regime and its code of conduct. Wotruba (1997) also suggests that
regimes and codes that are proactively motivated tend to be broader
while reactive codes tend to produce more specific and narrow codes of
A narrow and specific code has one primary advantage: It may be
easier to get actor acceptance and, therefore, increase the potential
for success. Its primary disadvantage is that it may become increasingly
more difficult to broaden the scope of such a regime once it becomes
operational. Yet regimes as social institutions are by their nature
dynamic, and their stability may depend on their capacity to change
(Young, 1982). Change in regimes come about as new issues emerge and are
linked to existing ones, thereby broadening the scope. The normative
research on regimes suggests that narrow scopes may be self-defeating,
because it is more difficult for actors to link
1. coming out from a cavity or other part.
2. pertaining to an emergency.
1. coming out from a cavity or other part.
2. coming on suddenly.
existing ones after the regime has become operational (Haggard and
Simmons, 1987). Worse yet, narrow codes may end up generating behaviors
at variance with the original codes, perhaps because their limited scope
leaves too much room for those seeking to manipulate or
v. e·vad·ed, e·vad·ing, e·vades
1. To escape or avoid by cleverness or deceit:
Haggard and Simon (1987) cite the case of the General Agreement on Trade
and Tariffs (
See General Agreement on Tariffs and Trade (GATT).
) as a form of regime with a narrow scope that
succeeded in virtually eliminating trade barriers in the 1950s and
1960s, only to expose, and even encourage, nontariff barriers. The key
insight here is that regimes and their codes of conduct need to be broad
enough to allow for bargaining and creating linkages that will help them
to be effective in the long term. Regimes are dynamic and often need to
change, and making them too narrow from the beginning unduly constrains
The Kimberley Process has a selective and narrow scope, as
described. One of its notable features has been its ability to engage in
issue-linkages in response to changing political momentum and consensus.
A 2006 study of the KP by Wexler (2006) noted that, at its inception,
actors in the KP regime were unable to agree on a system to review
national implementation, but less than 10 months into operations,
participants reached a deal on peer review monitoring system. The report
noted that soon after the deal on peer monitoring, key countries in each
region immediately requested visits, and their experiences helped
tr.v. le·git·i·mized, le·git·i·miz·ing, le·git·i·miz·es
the approach (Wexler, 2006). The Equator Principles, while
also fairly narrow in scope, have a broader framework for promoting
environmental and social responsibility at project finance institutions.
A second character dimension of a regime is its specificity.
Wotruba (1997) observes that codes of conduct can be specific or
general. A code is specific if it stipulates clearly what activities or
behaviors are required of actors. Wotruba (1997) suggests that specific
code statements provide clearer standards for desired behavior including
the nature of sanctions-if the regime has sanctions. Vague statements do
not give a clear indication of acceptable and unacceptable behavior. For
example, compared with the Kimberley Process, the Equator Principles are
much less specific. KP clearly stipulates what the parties’
responsibilities, including such details as the need for transporting
diamonds in tamper-resistant containers.
The Kimberley Process and the Equator Principles illustrate how the
character dimensions of regime codes may affect their performance. In
terms of scope, both seem to be narrow and may in fact be described as
single-issue regimes. The Equator Principles in particular have been
sharply criticized for their very narrow scope, which is limited to
project finance defined in a very strict sense with provisions applying
to only portions of the activities of lending banks. The Equator
Principles have also been criticized for excluding corporate loans and
bonds and neglecting human rights. Missbach (2004) observes that because
the Principles only apply to direct lending in project finance, other
financial transactions with environmental and social impacts are
ignored. Indeed subsequent revisions of the Principles in May 2003
further limited the scope of the EP to “direct lending.” This
means that the Principles were not applied to project finance deals
where a bank may be a financial advisor, underwriter, arranger, or lead
manager -all important ways in which a bank may be involved in
financing. Missbach (2004) also noted the lack of indications that the
EP regime was committed to developing policies governing other financial
vehicles in the future.
Critics of the narrow scope of the Kimberley Process argue that the
agreed-upon elements of the program fail to ensure that the link between
diamonds and human rights abuses will be
v. sev·ered, sev·er·ing, sev·ers
1. To set or keep apart; divide or separate.
2. To cut off (a part) from a whole.
because of the limited
scope of the certification scheme. The argument is that since trade in
conflict diamonds potentially affects all diamonds, the exclusion of
polished diamonds, diamond
personal adornments worn for ornament or utility, to show rank or wealth, or to follow superstitious custom or fashion.
The most universal forms of jewelry are the necklace, bracelet, ring, pin, and earring.
, and rough diamonds meant that some
aspects of the diamond trade were effectively excluded (Duke, 2001).
Also, the KP’s exclusion of diamond trading within a
participants’ territory opened up the possibility of illegal
transfers and that packages of diamonds will contain a mixture of
conflict and legitimate diamonds (Schefer, 2007). Unlike the EP, the KP
seems to have broadened its scope since its inception. For example, the
Diamond Development Initiative, an offshoot of the KP, aims to find
sustainable methods of ensuring that diamonds are mined and distributed
for the benefit of local communities and local government
(www.diamonddevelopmentinitiative.org), a significant widening of the
original KP scope.
A final consideration is the coherence of the code, measured by the
extent to which all parts of the regime operate together as a smoothly
functioning system. Donnelly (1986) suggests that coherence has three
important dimensions. First, there is normative
Not understandable; disordered; without logical connection. See Schizophrenia.
inconsistencies between the individual values of firms in the regime and
the regime’s norms. Such inconsistency may reflect an
n. the state of a marriage in which the spouses no longer have the mutual desire to live together and/or stay married, and is thus a ground for divorce
between individual actors’ organizational norms or
values, or may be caused by a regime code of conduct that is so vague
individual firms can assign interpretations that may clash with the
norms of the regime. For example, the participants in the Equator
Principles revised some of their original principles, substituting the
reference to “human rights” with the term “socially
responsible”-a very broad term with multiple meanings. Sometimes
1. Of or relating to ontology.
2. Of or relating to essence or the nature of being.
assumptions of actors affect how they define and apply
the term “social responsibility.” This sort of incoherence
makes it difficult for regime actors to apply a uniform understanding to
the norms that guide the regime. Second, there is procedural
incoherence, arising from incomplete decision-making procedures or
structures associated with the regime. Finally, incoherence may arise
when actors use established decision-making procedures to undermine the
substantive norms of the regime because of inconsistencies between the
regime’s own norms and procedures.
A good example of actors using established procedures to undermine
regime norms may be found in the reaction of some banks in the EP to
findings of the ”
/ex·trac·tive/ () any substance present in an organized tissue, or in a mixture in a small quantity, and requiring extraction by a special method.
Industries Review” -an independent
study of oil, mining, and gas projects financed by World Bank. It is
reported that on April 14, 2004, then World Bank President Paul
Wolfensohn received a letter signed by 11 EP Banks, acting as a lobbying
group, urging him to reject most of the report. The banks opposed the
proposal that the World Bank Group withdraw from lending to coal
immediately and oil by 2008, arguing that these extractive activities
provide developing countries with revenues necessary to alleviate
poverty. Simon McRae of the Friends of the Earth U.K. is quoted as
saying, “One of the most distressing things we have seen this year
imaginary great circle around the earth, everywhere equidistant from the two geographical poles and forming the base line from which latitude is reckoned. The equator, which measures c.24,902 mi (40,076 km), is designated as lat. 0°.
banks have formed themselves into a lobby group to block
pro-poor reforms at the World Bank. Certainly Equator banks have a right
to express their own opinion, but when they band together to become
obstructionists it deals a blow to their integrity” (Baue, 2004).
By applying lobbying tactics, the banks were effectively using
established decision-making procedures to undermine some of the very
norms of the EP regime. The same sort of lobbying strategy was adopted
by the jewelry industry in key states within the Kimberley Process to
exclude polished diamonds and diamond jewelry from the scope of the
Kimberley Process (Duke, 2001). What a lack of coherence does is to
weaken the regime and the chances for its stability and success.
Regime strength and participant commitment
The strength of a regime is indicated by the extent to which
participants comply with its provisions. A regime is strong when
participants comply with the provisions even if they are detrimental to
their short-term self-interest. The literature uses the concept of
regime strength to describe the degree to which regime actors accept and
comply with the governing code of conduct (see e.g., Donnelly, 1986,
Hass, 1983), and we borrow from that literature. According to Donnelly
(1986), the strength of a regime may best be understood by looking at
two dimensions: (1) the degree to which members of the regime abide by
its provisions and make use of the norms, procedures, and codes of
conduct to which they have committed themselves as members, and (2) the
extent to which the underlying values of the code are clearly
First, regime actors must abide by the provisions of the code for
it to work. It was reported that soon after the adoption of the Equator
Principles, some major banks financed the Baku-Tibilissi-Ceyhan oil
pipeline, which, when completed, will run from Azerbaijan to Turkey via
Georgia. This project has been sharply criticized for numerous
violations of environmental and human rights laws (Missbach, 2004),
thereby violating one key rule of regime strength and stability.
Second, the strength of a regime is determined by how well the
ethical values underlying the code of conduct are articulated. For
example, the basic ethical values underlying the Equator
Principles’ code of conduct include respect for the environment,
sustainable principles, and corporate stewardship of economic and social
issues associated with their activities. A clear articulation of the
underlying ethical values strengthens a regime because it makes it
easier for individual actors to integrate the code into their
organizational ethics. The preliminary evidence on the Equator
Principles shows that the code that guides the regime has failed to
clearly articulate the underlying values. In fact, an
1. One that is worthy of imitation; a model. See Synonyms at ideal.
2. One that is typical or representative; an example.
3. An ideal that serves as a pattern; an archetype.
the Equator Principles failed to do can be seen in the 2002 Collevecchio
Declaration by some civil society groups as a roadmap to sustainability
for the financial sector (Missbach, 2004). For example, the Declaration
has put forth the principle that actors in the regime
“doing no harm.” They suggest that financial institutions
commit to do no harm by “preventing and minimizing the
environmental and/or socially detrimental impacts of their portfolios
and their operations.”
At a deeper level, the ethical values underlying these norms are a
fundamental commitment to social good and a commitment to social
. Other ethical values
inherent in the general norms of the regime include a commitment to
honesty, fairness and a commitment to be a good corporate citizen. The
Kimberley Process also seems to have failed on this score. Underlying
the regime is the value of protecting human rights, a value that
adjective Referring to any combination of 2 or more drugs, which results in a therapeutic effect that is less than the sum of each drug’s effect. Cf Additive, Synergism.
to the Kimberley Process at the moment. A
failure to clearly articulate the fundamental ethical values underlying
the codes of conduct in regimes may make it more difficult for regime
To send a customer order from a brokerage firm to the firm’s own specialist or market maker. Internalizing an order allows a broker to share in the profit (spread between the bid and ask) of executing the order.
the code provisions. Clearly articulated core
values can serve as guides for developing individual codes of ethics in
member organizations. Since ethical codes guide behavior of internal
(Trevino and Brown, 2004), core values expressed in codes
will help regime actors develop greater commitment to a regime’s
codes of conduct. Usually, the preamble to the regime codes gives some
indication of the underlying ethical values. The basic values underlying
both the KP and the EP are vague.
It is not surprising that both the KP and EP regimes fail to
clearly articulate fundamental values because one of the difficulties in
regime formation is agreement on fundamental issues. The literature on
institutional bargaining and regime formation shows that actors often
engage in bargaining to reach consensus. The normative literature
indicates that regime actors anxious to reach agreement often focus on a
few key issues and try to arrive at outcomes that will be broadly
acceptable. In the process, they avoid or ignore controversial issues
(Raifa, 1982; Young, 1991). Therefore, it is not surprising that regime
actors may try to ignore the contentious issues such as articulating
fundamental values for fear of jeopardizing regime acceptance. However,
any such failure may come back to hurt the regime in the long term.
Stakeholders, advocacy groups, governments, and publics assume that
those engaged in collective action will realize the basic expectations
they set for themselves. Indeed, Keohane suggests that the emergence of
global regimes such as the U.N. Global Compact, and, one might add,
regimes such as the Equator Principles and the Kimberley Process, are in
some ways responses to demands that corporations be accountable for
their actions. Although accountability is important for regimes to be
effective, it is not always clear what constitutes accountability.
Keohane (2008) discusses three elements that must be present for
accountability to be effective: (1) standards that those who are held
accountable are expected to meet (regarding the Kimberley Process and
the Equator Principles, the codes of conduct that guide each regime
become the standards of expectation), (2) the availability of
information to accountability-holders so that they can evaluate the
performance of those who are held to account, and (3) the ability of
accountability-holders to impose sanctions by attaching costs to the
failure to meet the standards.
These three elements can only be effectively deployed when at least
three conditions exist: transparency in performance, some form of
monitoring of the regime actors, and a way to control the behavior of
the agents. Transparency refers to the degree to which information is
disclosed and stakeholders are consulted by the agents in the regime.
Monitoring implies oversight of activities, so accountability-holders
can determine whether the agents are fulfilling their performance
obligations. Internal control is necessary to ensure that members of the
regime are meeting the standards they set themselves.
Although both the Kimberley Process and the Equator Principles have
very clear mandates both regimes have been criticized for their lack of
transparency and accountability. For example, the Equator Principles has
no formal mechanism for ensuring accountability, since actors
essentially police themselves (Missbach, 2001). Indeed, the Kimberley
Process subverts the norm of transparency when it states:
“Participants and observers should make every effort to observe
strict confidentiality regarding the issue and the discussions relating
to any compliance matter” (Kimberley Process Working Document,
2002). Similarly, actors in the Equator regime have not supported public
disclosure of information on their transactions. For example, while
borrowers are required to prepare environmental assessments before
project appraisals and loans are granted, no provisions compel borrowers
to release the environmental reports. Keohane (2008) suggests that
people often equate accountability with power, and speculation suggests
that regime actors may equate secrecy with power, while equating
transparency with yielding power to accountability-holders. However,
without transparency, it is impossible for stakeholders to assess
whether banks are in compliance with the code of conduct, and the
accountability mechanism of the regime may be weakened. Yet, unless
accountability-holders have a say on how the regime is performing, the
very reason for a regime’s existence will be subverted. As Hemphill
(2004) observes, the “final arbiter of the effectiveness of
industry self-regulation is the consumer of the respective
industry’s products and services.”
Another element of accountability is monitoring. In its review of
the Kimberley Process in 2002, the U.S. General Accounting Office, an
investigative arm of the
officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world’s third largest country in population and the fourth largest country in area.
Congress defines a monitoring
mechanism as one that “consists of continuous monitoring and
evaluation to assess the quality of performance over time in achieving
the objectives and ensuring that the findings of audits and other views
are promptly resolved.” Here again, both the KP and EP have been
criticized for a lack of regular, independent monitoring of their
operations. It has been suggested that actors in the Kimberley Process
v. balked, balk·ing, balks
1. To stop short and refuse to go on:
at greater monitoring for fear of giving out
information that may compromise commercial confidentiality of industry
members, and national sovereignty in the case of governments (Smillie,
2002). The author notes that the cost of monitoring has also been cited
as a reason for the reluctance of regime actors in the Kimberley Process
to move further on monitoring. One result is that actors in the
Kimberley Process have refused to permit outside controller’s
access to their trade regulation mechanism. Instead, the regime calls
for the Chair of the Process to establish “review missions” if
there are questions about a participant’s compliance with regime
rules. Such review missions are to be called upon “where there are
credible indications of significant noncompliance with the Certification
Scheme, and the affected regime actor consents (the KP Certification
Scheme Document, Section VI. 14). In general, monitoring proposals in
the KP remain vague. Indeed, the General Accounting Office review of the
Kimberley Process agreement in June 2002 and found it seriously
deficient in monitoring. It noted that “even acknowledging
sovereignty and sensitivity constraints, the Kimberley Process
scheme’s monitoring mechanisms lack
/rig·or/ () [L.] chill; rigidity.
rigor mor´tis the stiffening of a dead body accompanying depletion of adenosine triphosphate in the muscle fibers.
.” The scheme risks
the appearance of control while still allowing conflict diamonds to
enter the legitimate diamond trade and, as a result, continue to fuel
conflict.” As Smillie (2002) observes, this absence of effective
monitoring in the KP provisions compromises an otherwise significant
regime and weakens it.
The final requirement for accountability is a system of controls
that ensures compliance with the regime’s core provisions. The
Kimberley Process has been criticized for a lack of such internal
controls. For example, each country in the KP was expected to develop
and implement a system of internal controls to track the origin of
diamonds and ensure that conflict diamonds do not enter the legitimate
diamond trade. The KP does not specify any mandatory controls, and this
has contributed to weak measures adopted by many countries (Wexler,
Keohane’s (2008) observation that accountability involves a
power relationship between accountability-holders and agents is
important. As he puts it, anyone who can hold you accountable has power
over you-“a situation which you naturally resist and would like to
reverse.” Regarding the Equator Principles, for example,
accountability viewed within the lens of a power play may mean that
local communities where projects are sited should be actively consulted
and have a say in the final decision. The banks, on the other hand, may
resist this if they believe that stakeholders are trying to unduly
influence the process. No matter who wins or loses the power play, it is
in the common interest of all actors in a regime, both the
accountability-holders and the agents, to accept that accountability is
important for a viable and sustainable regime.
Administrative structures and decision-making procedures
An important prerequisite for the implementation of any industry
self-regulatory regime is an organization for its administration.
Industry codes at the domestic level are typically administered under
the auspices of trade associations (Wotruba, 1997). In the case of
global regimes, there are serious administrative challenges, and the
existence of some administrative structure should help the
implementation processes. However, a lack of formal administrative
structures need not be a reason for a regime’s failure as long as
there are clear procedures to guide actor decision-making. Indeed, a
loose administrative structure may confer a certain amount of
flexibility on the regime, while formal structures may promote
bureaucracy and could lead to the
tr.v. re·i·fied, re·i·fy·ing, re·i·fies
To regard or treat (an abstraction) as if it had concrete or material existence.
of structure at the
expense of efficiency in bargaining and decision-making.
The Kimberley Process has shown that a lack of formal structure
need not necessarily hamper collaboration in a regime. The Kimberley
Process operates more like what Mintzberg (1979) calls an
ad-hocracy-largely temporary organizations formed around a common shared
purpose whose success depends on tightly coordinated activities. A
distinguishing feature of ad-hocracy is that members often lack the
formal tools for coordination. The Kimberley Process operates wholly as
an ad-hoc organization. There is no permanent secretariat and all labor
is voluntary. The regime is overseen by a chair who is elected annually,
while the business of the regime is conducted through various working
groups and committees whose membership is settled through informal
negotiation. Maintenance of the KP web site rotates with the chair, and
the on-line statistics are managed by the Canadian
Department of Natural
, which collects data and generates reports. The KP has relied
heavily on sharing information and experience, using consensus and
diplomatic pressure and the threat of expulsion for noncompliance. The
latter involves a ban on trading in diamonds with other members. These
are the main incentives for ensuring collaboration (Wexler, 2006). The
Equator Principles, on the other hand, has evolved since its formation
in December 2003 from a temporary structure to a fairly formal
administrative structure. The EQ currently has a chair assisted by a
A committee that sets agendas and schedules of business, as for a legislative body or other assemblage.
with direct links to the International Finance
Corporation (a branch of the World Bank). In addition, there are seven
working groups with specific responsibilities for the different items
related to the scope of the Principles.
Although flexible administrative structures have benefits, there
are some weaknesses to excessive informality and
as a form of
governance and administration. First, ad-hoc administrative structures
tend to depend on experts and volunteers who may never meet again once
their particular project disbands or their tenure lapses. This means
little continuity. However, since one important characteristic of
regimes is their dynamism and need for change, it may not always be easy
to build on past achievements, and a certain amount of inefficiency may
be inevitable as each group of experts and volunteers takes over regime
affairs. At a minimum, a permanent professional secretariat with a
skeletal staff to maintain regime records should help continuity and
promote efficiency. Also, standardizing decision-making procedures can
be helpful and limit time spent agreeing on how to resolve issues.
How a regime is governed in terms of the private institutional
arrangements (Williamson, 1985) the actors put in place has an important
bearing on the regime’s stability and success. There are two
opposing views on the nature of institutional governance mechanisms most
suitable for self-regulatory regimes: one is that regimes need sanctions
in the case of violations of the norms, and the other is that
self-regulatory regimes can function without sanctions.
It has been suggested that self-regulatory regimes are more likely
to fail without the ”
Rigorous or despotic control:
of sanctions” (King and Lenox,
2000). The argument is that without mechanisms to ensure that firms who
violate the codes of behavior are sanctioned, violations may persist
(Grief, 1997). Indeed, one study of the Responsible Care Program, the
self-regulatory industry regime in the chemical industry, casts doubt on
the strength of social control (i.e., the absence of sanctions and the
use of peer pressure) and confirms that regimes without explicit
sanctions are less likely to succeed (King and Lenox, 2000). The authors
concluded that the potential for opportunistic behavior was so great
that effective self-regulation was difficult to maintain without
explicit sanctions and that the
pressures expected to
v. en·gen·dered, en·gen·der·ing, en·gen·ders
1. To bring into existence; give rise to:
compliance were weak at best. King and Lenox (2000) also
suggest that some actors may use the regime standards as a smokescreen
so that it becomes impossible to differentiate those that are genuinely
adhering to the standards and those that are not. Other researchers have
argued that some actors may adopt the regime standards only symbolically
because of the social and political legitimacy that membership confers
on participants (Abrahamson and Rosenkopf, 1993). King and Lenox (2000)
observe that although it’s difficult to determine whether such
actors fail to
verb 1. , keep, maintain, respect, observe, be true, fulfil, obey, heed, keep to, abide by, be loyal, mind, be constant, be faithful
the standards as a matter of deception or
because they are naive, the fact is they fail to make the required
changes in behavior. The viability of sanctions in cooperative systems
has also been studied. For example, research has shown that sanctioning
systems in social dilemmas or situations requiring cooperation promotes
trust and cooperation (Robbins, 1995; De Cremer et al., 2001). The fact
is a sanctioning system creates an incentive for actors, who fear the
penalty. In game-theoretic terms, sanctions also alter the pay-off
structure by making it costly for actors to violate the norms of the
regime. Arguments for explicit sanctions echo those made by
institutional theorists, namely that relationships are best governed
with formal contracts and not trust and goodwill (Williamson, 1985).
What is important, though, is to examine how feasible the sanctioning
mechanisms are in a global regime that involves cross-jurisdictional
First, sanctions are only useful when violators are discovered and
punished. Unless there is an effective monitoring system to catch
violators, the effectiveness of any sanctioning system will be in doubt.
In global regimes where the actors may be spread across several
jurisdictions and geographical areas, it may not be easy to discover who
is violating the code. Second, even if violations are known, there is no
reason to suggest that all actors will agree on the severity of the
violation. Indeed, some violations may be forgiven by some actors
because of the circumstances. Not all violations of group norms are
equal, as context and inferences may determine how people perceive them
(Ramseyer, 1991). Finally, in cases where global regimes rely on
national chapters or governments to enforce sanctions, there are
additional issues such as the adequacy of legal institutions and the
vigor with which national chapters or governments enforce the law.
Therefore, while sanctions may help regime stability in principle; their
value in global regimes is by no means assured.
The second view, and one that seems more sustainable in the end, is
that self-regulation can succeed in the absence of explicit sanctions
and that member behavior can be controlled through such informal
mechanisms as coercion, the transfer of norms, and the diffusion of best
practices (Nash and Ehrenfeld, 1997). Proponents of this perspective
draw on institutional theory (DiMaggio and Powell, 1991) to suggest that
institutional forces can act as indirect control mechanisms to ensure
compliance. The argument is that actors can use
Characterized by or inclined to coercion.
forces such as
tr.v. pub·li·cized, pub·li·ciz·ing, pub·li·ciz·es
To give publicity to.
Noun 1. publicizing – the business of drawing public attention to goods and services
the names of nonconforming members (Braithwaite, 1989).
The mechanism through which such coercive forces are supposed to
work is the fear of the loss of reputation by violators or
nonconformists. But that in itself presupposes that people care enough
about their reputation or that violations of standards will become
known. National industry regimes may be able to deploy institutional
forces effectively to secure regime compliance, but in global regimes
neither explicit sanctions nor institutional forces seem strong enough,
unless constraints discussed earlier are addressed.
There is reason to believe that the absence of sanctions, coupled
with the presence of internal actor commitment, would help regime
stability in the long run for at least three reasons. First, although
sanctions may enforce cooperation and trust temporarily, sanctions may
ultimately, in a perverse way, reduce the incentives for actors to be
self-motivated to comply with norms (Mulder et al., 2006). Mulder et al.
make the argument that the presence of a sanctioning system could be
interpreted as a signal of distrust toward group members, and the
sanctioning system might indicate to members that they are not trusted
to cooperate voluntarily. More important, everyone in the group may
assume that the only reason people in the group cooperate is the
presence of a sanctioning system (Tenbrunsel, 1999). Mulder et al.
(2006) found that the presence of a sanctioning system actually
encouraged dependence on it to the extent that participants in a
situation actually defected when the sanction was removed. They
also found that sanctions reduced self-activated cooperation and trust.
Their findings are consistent with those of Yamagishi (1986), who
reported from his study of trust in Japan and the U.S. that long-term
sanctioning systems undermined trust because people tended to be less
trustworthy as soon as the sanctioning system was removed.
Organizational research has also shown that trust among actors is more
likely to endure when it emerges voluntarily (Luhman, 1988). The point
here is that trust and cooperation, and by extension adherence to the
norms of a global regime, are more likely to endure in the long run when
they are voluntary and not because there are sanctions.
Second, there is reason to suggest that self-activated compliance
(intrinsic motivation) is likely to be more effective than compliance
that is externally imposed (
motivation). Intrinsic motivation
here means that firms who are part of the global regime adhere to the
norms of the regime, not so much because of the sanctioning system but
because they see this as part of their social and ethical
responsibility. The presumption is that when participants see their
membership in the regime as an ethical responsibility and benchmark of
global corporate citizenship, their commitment is more likely to be
sustainable. Indeed, some organizational scientists have questioned the
effectiveness of ethics programs that are based on punishing violations
of the law (compliance programs) compared with those based primarily on
organizational values (values-based approaches). According to Paine
(1994), the latter approach should be more effective than the former
because it is rooted in personal self-governance. She argues that
compliance programs define ethics in legal terms rather than ethical
aspirations, thereby implicitly endorsing what she calls a “code of
n. pl. me·di·oc·ri·ties
1. The state or quality of being mediocre.
2. Mediocre ability, achievement, or performance.
3. One that displays mediocre qualities.
.” Trevino et al. (1999) similarly concluded that a
values-based approach to ethics works best because it motivates
verb , desire, pursue, hope for, long for, crave, seek out, wish for, dream about, yearn for, hunger for, hanker after, be eager for, set your heart on, set your sights on, be ambitious for
ethical conduct. This same argument can be made
for sanction-free regimes.
Finally, one needs to look at the practicality and effectiveness of
any sanctioning system in a global regime. The
1. Material or masonry used to support a structure, such as a wall.
2. A support or foundation. Often used in the plural.
3. Informal The human legs. Often used in the plural.
effective system is the ability to first prevent violations. Compliance
is assured either through the penalty that comes with any violation as
well as the sanctioning system’s ability to prevent violations in
the first place. However, unless a self-regulatory system is transparent
enough for violations to be known, and unless actors care about the
penalties in the form of a loss of reputation, the sanctioning system
will not be effective. For example, before it was reinstated in 2007,
Congo-Brazzaville was removed from the scheme in 2004 because it was
unable to prove the origin of its gems, most of which were believed to
have come from
1. One who lives near or next to another.
2. A person, place, or thing adjacent to or located near another.
3. A fellow human.
4. Used as a form of familiar address.
Congo-Kinshasa. For countries economically
dependent on diamond exports, this can be a substantial punishment,
since it disallows trade with much of the rest of the world.
The emergence of global regimes marks an important movement toward
, a situation in which advocacy groups and businesses
act without the direct government dictates, even as governments remain
important actors (Keohane, 2008).
has contributed to the
emergence of nongovernmental actors in global governance, leading
ultimately to rule-making by global corporations and nongovernmental
entities in areas that had hitherto been the exclusive domain of
governments (Rosenau, 1995; Hall and Biersteker, 2002). How such
nongovernmental regimes operate is important, and this research sought
to fill some of the gaps in our understanding by providing a framework
for that analysis.
As a form of collective action, global regimes face many
challenges, and structuring them for effectiveness is crucial. Although
this research draws upon two recent global regimes, the Equator
Principles and the Kimberley Process, to illustrate some key arguments,
the research is not strictly an evaluation of both regimes.
Nevertheless, both regimes may be important examples of the nature of
global regimes in the future, and both regimes have recorded some
important successes. Wexler (2006) observes that within three years of
its inception, the Kimberley Process is credited with
in legitimate diamond exports. In 2005, for example,
, officially Republic of Sierra Leone, republic (2005 est. pop. 6,018,000), 27,699 sq mi (71,740 sq km), W Africa.
exported $142 million of diamonds, up from $26 million in 2001. By 2003
the Democratic Republic of Congo had its best diamond export year in
history, and the vast majority of international trade and production is
now moved through official channels sanctioned by the Kimberley regime
(Wexler, 2006). The Kimberley Process has also enjoyed excellent
cooperation among its members, with many countries involved in the
decision-making processes. Despite weaknesses, the Equator Principles
has made some important preliminary progress. Its membership has
expanded from 10 banks in 2003 to 64 banks by December 2008. Today, over
70% of all global project finance is channeled through the regime.
Participating banks have committed themselves to applying the principles
outlined in the regime to all industry sectors, including mining, oil
and gas, and forestry. Progress on implementation has led to the
revision of the initial principles (2006 Equator Principles II). The
revised principles commit project finance banks to funding only projects
that comply with the scheme and to implementing the scheme in their
internal business and risk management processes (Thomas, 2007). We
should recognize that both the Kimberley Process and the Equator
Principles are still evolving and this analysis is by no means the final
story on these two institutions.
Implications for practice
Notwithstanding their weaknesses, both the EP and KP regimes have
demonstrated that global regimes can work. Besides the issues discussed
in the framework, global regimes can do more to increase their
effectiveness. First, regimes must have transparency, which is important
for accountability to be effective. Vital communications relating to the
regime should be
v. cen·tral·ized, cen·tral·iz·ing, cen·tral·iz·es
1. To draw into or toward a center; consolidate.
, and access to these made easy so that the
accountability-holders can have the data required to decide whether the
actors are complying with the code or guidelines of the regime. For
example, the Kimberley Process can increase its transparency by
publicizing detailed statistical data on diamond production and trade.
Such data then becomes an important way to determine whether the regime
is working or not. Similar recommendations on transparency have been
made to the Equator Principles regime. A group of NGOs that work on
finance and sustainability met in Collevecchio to assess the Equator
Principles and issue recommendations that have come to be known as the
Cellevecchio Declaration. It urged the Equator Principles to commit to
transparency, noting that “financial institutions must be
transparent to stakeholders, not only through robust, regular and
standardized disclosure, but also by being responsive to stakeholder
needs for specialized information on financial institutions policies,
procedures, and transactions (http://www.banktrac.org/index.php?id=53).
Second, because regime effectiveness depends on the extent to which
the actors fulfill the mandate, the effectiveness of the monitoring
mechanisms is important. Monitoring determines the degree of compliance
and may be one of the best ways to determine norm violations as well as
isolate and hold violators accountable. Two options are available: peer
or third-party monitoring. Although a certain degree of self-monitoring
is essential for regime effectiveness, the legitimacy of any monitoring
system will be enhanced when it is done by outsiders, either peers or
independent third parties. Indeed, one important criticism of the
Kimberley Process is its lack of any regular, independent monitoring of
the participants’ implementation of the certification schemes
(Schefer, 2007). Similarly, calls have been made for the establishment
of an independent accountability mechanism for the Equator Principles
(Missbach, 2001). More important, sanctions need to be applied when
violations are discovered. Lenox and Nash (2003) found that failure to
tr.v. ex·pelled, ex·pel·ling, ex·pels
1. To force or drive out:
members for noncompliance invited under-performing firms to join
but fail to comply with the regime norms.
Peer monitoring seems attractive in the sense that all actors
understand the evaluation criteria and what is expected. What is open to
question may be the legitimacy of the results of such peer reviews by
stakeholders and publics. Where peer review is voluntary, its
effectiveness may be further weakened by the fact that those who comply
will be the very people who would do so anyway while violators will be
less enthusiastic and likely avoid it altogether. The Kimberley Process
has this sort of quasi-voluntary peer review. This regime calls for the
chair, with the affected actor’s consent, to establish a peer
review process if there are credible indications of “significant
noncompliance” (Section VI. 14 of
Third-party monitoring mechanisms may be more effective but be more
difficult to put in place because actors in a regime may see it as
surrendering their independence. Also, the information asymmetries
between outside stakeholders and regime firms means that unless regime
actors are truly transparent, it may be difficult to evaluate compliance
is preferable to peer
monitoring. What firms surrender in independence will be more than
offset by the legitimacy they gain in the eyes of outside stakeholders
and the public. The greater legitimacy arises from the perceived
independence and neutrality of the third party. Missbach (2004) suggests
that exemplars for third-party verification may be found in existing
accountability mechanisms of the World Bank Group and the
. Another important example of third-party monitoring is
the case of the Responsible Care regime of the global chemical industry.
The International Council of Chemical Associations monitors and
coordinates Responsible Care programs implemented throughout the world.
An independent third party certifies that each Responsible Care company
has a Responsible Care management system in place (Hemphill, 2004).
Fourth, although often not a subject of extensive exploration, a
regime’s leadership may be important to its success, primarily in
its formation. Young (1991) observed that individual leadership is often
relegated to the background in regime analysis. Young defines regime
leadership in terms of “the actions of individuals who endeavor to
tr.v. cir·cum·vent·ed, cir·cum·vent·ing, cir·cum·vents
1. To surround (an enemy, for example); enclose or entrap.
2. To go around; bypass:
the collective action problems that plague the
efforts of parties seeking to reap joint gains in the process of
institutional bargaining.” Leadership need not be limited to
individuals, since organizations within the regime can play a critical
role. Powerful companies in industry regimes are in the best position to
offer leadership because they will
Not changing or subject to change; constant.
have more resources. At
the same time, larger actors stand to benefit the most from a positive
industry image and suffer the most in the case of a negative image. In
the diamond industry, De Beers of
Afrikaans Suid-Afrika, officially Republic of South Africa, republic (2005 est. pop. 44,344,000), 471,442 sq mi (1,221,037 sq km), S Africa.
will be a candidate for
leadership in the Kimberley Process. The 10 convening banks of the
Equator Principle are in the best position to offer leadership. Indeed,
zealous activity by regime leaders can play a key role in promoting
cohesion in the regime. The normative literature in game theory suggests
that zealous activity by some actors in a cooperative situation can
overcome some of the problems of collective action (Olson, 1965).
Fifth, as mentioned in relation to regime strength, actors in a
regime need to make internal commitments to the regime for it to be
effective. Indeed, Ashby et al. (2004) suggest that the ability of an
industry regime to overcome free-riding is
firms’ compliance motives. One important approach to making this
internal commitment is for participants to make the code part of their
internal ethical values. As mentioned, a clear articulation of the
fundamental ethical values underlying the regime’s code will help
the process of developing internal commitment to it. In addition,
organizational leaders must actively support the core ethical values
that underpin the regime’s code. The role of leadership in building
an ethical organization is well known (Trevino and Brown, 2004).
Finally, the loss of reputation remains perhaps the best mechanism
for holding actors in a voluntary regime accountable and compliant. In
this respect, stakeholders, the general public, and peers are in the
best position to deploy this mechanism. Although the fear of loss of
reputation can be used as a hostage for performance, it has limits. For
example, Lipson (1991) has shown that individual actors who have no
intentions of dealing with others in the future care little about loss
of reputation. In other cases, some violations can be forgiven or viewed
as not so important. Therefore, enhancing the mechanisms by which a loss
of reputation can have the desired impact will be important. This can be
done by publicizing membership and activities of the regime widely, and
by incorporating active stakeholder participation. Both the Equator
Principles and the Kimberley Process can co-opt environmentalists and
activist organizations such as those who put up the Collevecchio
Declaration and Global Witness-groups committed to advancing
sustainability and human rights, respectively. This argument is
consistent with institutional theorists who suggest that publicizing the
names of nonconforming members in a regime can lead to public scrutiny
and the deployment of social sanctions (Braithwaite, 1989; O’Hare,
Nongovernmental regulatory regimes will continue to be an important
part of global governance. Both the Equator Principles and the Kimberley
Process have shown that in spite of challenges, global regimes can
perform credibly if they are structured to enhance their effectiveness.
This research has provided some preliminary ideas on the major issues
related to strengthening such nongovernmental regimes. This and
additional research should further enhance our understanding of these
emerging, global organizational issues.
The Kimberley Process (www.Kimberleyprocess.com)
The Kimberley Process and System of Warranties is a U.N.-mandated
system that came into effect in November 2002. Conflict diamonds came to
the attention of the world media during the civil war in Liberia and
Sierra Leone. The U.N., governments, the diamond industry, and NGOs
(e.g., Global Witness,
(AI,) human-rights organization founded in 1961 by Englishman Peter Benenson; it campaigns internationally against the detention of prisoners of conscience, for the fair trial of political prisoners, to abolish the death penalty and torture of
, and Partnership Africa
Canada) came to realize the need for a global system to prevent conflict
diamonds from entering the legitimate diamond supply chain. They
developed an agreement called the Kimberley Process which requires
participating governments to ensure that each shipment of rough diamonds
be exported and imported in secure containers, accompanied by a uniquely
numbered, government-validated certificate stating that the diamonds are
from sources free of conflict. Under the Kimberley Process, diamond
shipments can be exported and imported only within co-participant
countries in the Kimberley Process. No
Not officially verified, guaranteed, or registered; not certified:
shipments of rough
diamonds will be permitted to enter or leave a participant’s
country. In November 2002, 52 governments
tr.v. rat·i·fied, rat·i·fy·ing, rat·i·fies
To approve and give formal sanction to; confirm. See Synonyms at approve.
and adopted the
Kimberley Process Certification System, which was fully implemented in
August of 2003. Today, 71 governments, in partnership with the diamond
industry and NGOs, are committed and legally bound to the U.N.-mandated
process. Kimberley Process participants undergo periodic previews, along
with peer monitoring, to ensure compliance. All countries that are
participants of the Kimberley Process are closely monitored. The
Kimberley Process covers the following areas:
After rough diamonds are mined, they are transported to government
Export (Kimberley Process)
After arriving at the government diamond offices, the source of the
diamonds is checked to ensure it is conflict free. The diamonds are then
sealed and placed into tamper-resistant containers and issued a
government-validated Kimberley Process Certificate bearing a unique
serial number. Seventy-four countries have implemented the principles of
the Kimberley Process and have it enshrined in their national law. Only
these countries may legitimately export rough diamonds
Import (Kimberley Process)
Diamonds can be legally imported only into one of the 74 Kimberley
process countries. Once diamonds are imported, the government customs
Noun 1. conformance – correspondence in form or appearance
agreement, correspondence – compatibility of observations; “there was no agreement between theory and
with its national procedures, checks the
certificate and seals on the container. Any rough diamonds without a
government-validated Kimberley Certificate or that are unsealed are
turned back or impounded by customs.
Manufacturing/trading (system of warranties)
Once a diamond has been legitimately imported it is ready to be
traded, cut and polished, and set into jewelry. Several companies may be
involved in this process. Each time the diamond changes hands it must be
accompanied by a warranty on invoices stating that the diamond is not
from a conflict source. This is called the system of warranties.
Manufacturers and traders are required to audit these systems of
warranties statements on their invoices as part of their annual audit
process and to keep records for five years.
Retail (system of warranties)
Retailers are responsible for ensuring that the diamonds they stock
and sell carry a warranty that they are conflict free. Retailers are
required to audit these systems of warranties statements on their
invoices as part of their annual audit process and to keep records for
five years. The warranty does have to appear on the consumer’s
receipt. But by implementing measures for greater supervision,
compliance, and accountability within the diamond trade, consumers can
be assured that the diamonds they buy are from conflict-free sources.
Consumers can ask for assurances from their retailers in this regard.
The Equator Principles I and II (www.equatorprinciples.com)
The Equator Principles I (2003)
* Projects with a total capital cost of $50 million or more will be
screened for their social and environmental risk and ranked as A (high),
B (medium), or C (low), in accordance with IFC guidelines.
* Borrowers for category A and B projects must complete an
environmental assessment (EA). Borrowers for category A projects must
also prepare an environmental management plan (
* The EA report must address 17 different issues, including: land
acquisition and land use; involuntary
n. 1. Act of settling again, or state of being settled again; as, the of lees s>.
The of my discomposed soul.
; and consideration of
feasible environmentally and socially preferable alternatives.
* Borrowers for A and B projects must consult groups affected by
the project, including indigenous peoples and local NGOs. The EA must be
available to the public.
* The borrower is covenanted to comply with its EMP, provide
regular compliance reports, and, if necessary,
tr.v. de·com·mis·sioned, de·com·mis·sion·ing, de·com·mis·sions
To withdraw (a ship, for example) from active service.
in accordance with an agreed
plan. If the borrower does
not comply, it could be deemed to have defaulted on the loan.
* “As necessary,” lenders will appoint an independent
environmental expert to provide additional monitoring and reporting
Equator Principles II (2006)
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* The Principles now also apply to project finance advisory
* The revised Principles now cover upgrades or expansions of
existing projects where the additional environmental or social effects
* The approach in applying the Principles to countries with
existing high standards for environmental and social issues has been
* Each participating bank is now required to report annually on the
progress and performance of implementing the Equator Principles.
* The Principles apply stronger and better social and environmental
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Ronald S. McMullen, Quinnipiac
Dr. Adobor conducts research and has published in the areas of
strategic alliances, ethical leadership, and inter-firm collaboration.
Dr. McMullen focuses his research and writing on entrepreneurship,
especially the development and training of entrepreneurs, supplier
relationships, leadership, and small business development.