The Need for a Code of Conduct for Transnational Corporations

When a garment factory collapses or a mining operation poisons a river, the company behind the brand is often headquartered thousands of kilometres away, beyond the reach of the laws where the harm occurred. This is the central problem of regulating transnational corporations (TNCs): their power crosses borders, but accountability rarely does. For decades, the international community has tried to close this gap by creating a binding code of conduct that would hold TNCs to common standards on human rights, labour, and the environment. The story of these efforts reveals just how hard it is to make global business answerable to global rules.

Why TNCs are difficult to regulate
The case for social responsibility
The United Nations and the failed code of conduct
Why the code was blocked
The OECD’s non-binding alternative
National Contact Points and their limits
Corporations writing their own rules
The Levi Strauss example
The strengths and weaknesses of corporate codes
The shift toward a global framework
The push for a binding treaty
The enduring obstacles

Why TNCs are difficult to regulate

A transnational corporation operates across multiple countries through subsidiaries, contractors, and supply chains. A single brand might design a product in one country, source materials from a second, manufacture in a third, and sell in dozens more. This structure gives TNCs enormous economic reach. It also creates a regulatory vacuum.

National governments can only enforce laws within their own borders. When a company’s most damaging activities happen in a poorer country with weak enforcement, the parent firm in a wealthier nation often escapes responsibility. Many serious abuses linked to transnational business, including environmental disasters and labour violations, have occurred in developing and underdeveloped countries where victims struggle to obtain compensation, as Georgetown Law’s analysis of the proposed treaty notes. This is why the demand for an international code of conduct has persisted for half a century.

The argument for regulating TNCs rests on a simple idea: economic power carries moral and legal obligations. A corporation that benefits from cheap labour, lax environmental rules, or weak oversight should not be allowed to profit from harm. A binding code would require TNCs to respect internationally agreed human rights standards regardless of where they operate, ensuring that workers in a factory in one country receive the same basic protections as workers anywhere else.

The aim is not to block foreign investment, which developing economies often need, but to ensure that investment does not come at the cost of human dignity. The challenge has always been turning this principle into rules that companies must actually follow.

The United Nations and the failed code of conduct

The most ambitious attempt to regulate TNCs began at the United Nations in the 1970s. Developing countries, organised around the demand for a New International Economic Order (NIEO), pushed for binding rules on multinational enterprises. In response, the UN established a Commission on Transnational Corporations and a dedicated Centre to draft a comprehensive code.

Negotiations on the United Nations Code of Conduct on Transnational Corporations began in the late 1970s and ended unsuccessfully in the early 1990s, according to the Columbia Center on Sustainable Investment. The draft code sought to define, in a balanced way, the rights and responsibilities of both transnational corporations and the host governments where they operated.

Why the code was blocked

The negotiations crystallised a deep divide. Developing countries wanted strong, binding obligations on corporate behaviour. Industrialised states, home to most TNCs, wanted guarantees protecting their companies’ investments and resisted legally binding duties.

This conflict proved impossible to resolve. The draft code repeatedly used the phrase “should/shall” precisely because negotiators could not agree on whether its provisions were voluntary or mandatory, as a Cambridge study on the period records. Substantive negotiations essentially stalled in the mid-1980s, and the code was finally shelved in 1992. The shift in the global climate toward liberalising rules to attract foreign investment removed any remaining pressure to adopt a binding instrument.

The OECD’s non-binding alternative

While the UN effort failed, a parallel and more durable approach emerged from the Organisation for Economic Co-operation and Development. The OECD Guidelines for Multinational Enterprises, first adopted in 1976, took a very different path. Rather than creating binding law, they offered recommendations.

The Guidelines are legally non-binding principles addressed by governments to multinational enterprises operating in or from adhering countries, now numbering more than fifty. They cover human rights, employment, the environment, anti-corruption, and consumer interests. Crucially, they are recommendations rather than obligations, reflecting the preference of industrialised states for voluntary standards.

National Contact Points and their limits

The Guidelines do include a monitoring mechanism. Each adhering country must set up a National Contact Point (NCP), an office that promotes the Guidelines and handles complaints. When someone alleges a breach, the NCP can offer an informal, non-adversarial procedure to help the parties reach a resolution.

This mechanism has value, but its weakness is obvious. NCPs cannot impose penalties or order remedies. They rely on dialogue and reputational pressure rather than enforcement. A company that ignores an NCP’s findings faces no legal consequence under the Guidelines themselves. This is the recurring limitation of the voluntary model: it can name problems but cannot compel solutions.

Corporations writing their own rules

As intergovernmental efforts stalled in the 1990s, many companies adopted their own voluntary codes of conduct. This era of corporate self-regulation produced some genuinely influential examples, particularly in industries vulnerable to consumer pressure over sweatshop conditions.

The Levi Strauss example

In 1991, Levi Strauss & Co. established a set of Global Sourcing and Operating Guidelines, becoming the first multinational company to adopt comprehensive standards of this kind. According to the company’s own account, the guidelines were based on the Universal Declaration of Human Rights and core conventions of the International Labour Organization.

The code applied not just to the company but to every contractor and factory making its products. It banned child labour, forced labour, and bonded labour, and required safe working conditions. Trained inspectors audited hundreds of contractors across dozens of countries. Footwear and apparel firms such as Reebok introduced similar production standards during the same period, responding to public campaigns against exploitative manufacturing.

The strengths and weaknesses of corporate codes

These corporate initiatives showed that companies could set meaningful standards and monitor their own supply chains. They demonstrated that responsible sourcing was possible and even commercially sensible. Over time, supplier codes of conduct became standard practice across the industry.

Yet self-regulation has a built-in flaw. The company writes the rules, judges its own compliance, and decides the consequences. There is no independent enforcement and no external accountability to the workers a code is meant to protect. A code is only as strong as a company’s willingness to honour it, and willingness can fade when profits are at stake.

The shift toward a global framework

By the 2000s, a clearer consensus emerged that voluntary codes alone were not enough. The most important development came in 2011, when the UN Human Rights Council unanimously endorsed the UN Guiding Principles on Business and Human Rights (UNGPs).

Developed by Harvard professor John Ruggie, the Guiding Principles established the influential “Protect, Respect and Remedy” framework and provided the first global standard for addressing business-related human rights risks. They place a duty on states to protect against abuses, a responsibility on companies to respect human rights through due diligence, and a shared obligation to provide remedies to victims.

The UNGPs are widely respected, but they too are voluntary. Companies must respect human rights under the framework, yet they are not held accountable under international human rights law, and national implementation has often been slow. This gap between principle and enforcement is exactly what the next stage of regulation aims to fix.

The push for a binding treaty

Recognising the limits of soft law, the UN Human Rights Council took a decisive step in 2014. It established an open-ended intergovernmental working group to draft an international legally binding instrument to regulate the activities of transnational corporations with respect to human rights.

This represents the third major attempt to harden standards into law, after the failed 1970s code and the voluntary UNGPs. A draft treaty would require states to establish legal liability for corporate human rights abuses in their domestic law, guarantee access to justice and remedies for affected people, and mandate human rights due diligence by transnational businesses. Negotiations are ongoing, with working group sessions continuing in recent years.

The enduring obstacles

The treaty faces the same political resistance that doomed the original UN code. Its success depends entirely on whether powerful states are willing to bind their own corporations to enforceable obligations. The central debate, much as in the 1970s, is whether such an instrument should apply only to transnational corporations or to all businesses, and how far state obligations should extend.

This is the heart of the matter. A code of conduct without robust monitoring and enforcement mechanisms remains a statement of good intentions. Without independent oversight, mandatory due diligence, and real remedies for victims, even the best-drafted standards can be ignored. The half-century journey from the failed UN code to today’s treaty negotiations is, at its core, a search for accountability that voluntary measures have never fully delivered.

What do you think? Should the responsibility for regulating TNCs rest mainly with home countries where corporations are based, host countries where they operate, or an international body with real enforcement powers? And given that voluntary codes have existed for over thirty years, do you believe a binding treaty can succeed where earlier efforts failed?

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Table of Contents

Why TNCs are difficult to regulate 🔗

The case for social responsibility 🔗

The United Nations and the failed code of conduct 🔗

Why the code was blocked 🔗

The OECD’s non-binding alternative 🔗

National Contact Points and their limits 🔗

Corporations writing their own rules 🔗

The Levi Strauss example 🔗

The strengths and weaknesses of corporate codes 🔗

The shift toward a global framework 🔗

The push for a binding treaty 🔗

The enduring obstacles 🔗