Global corporate accountability - Adrienne Margolis
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Updating the OECD Guidelines for Multinational Enterprises is a significant move towards implementing international legal norms.
There are few regimes governing the conduct of multinational corporations. One of them is the National Contact Points that are set up by governments that sign up to the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises. The National Contact Points (NCPs) provide a forum to hear complaints by those seeking redress from multinationals based in their jurisdictions. This means that the OECD guidelines are closely scrutinised, to assess whether they are effective in providing a framework for responsible business conduct.
The guidelines cover employment and industrial relations, human rights, environmental issues, information disclosure, anti-bribery, consumer protection, science and technology, competition and taxation. They are voluntary and OECD governments sign up to encourage corporations to observe them, wherever they operate.
The guidelines are currently being updated for the first time in a decade, to reflect the changes in the legal and economic climate. Last year, the UK Government’s Department of Business, Innovation and Skills (BIS) asked for the IBA’s views on which areas should be given priority for updating. The IBA’s Corporate Social Responsibility Committee set up a working group that brought together 27 members from eight different IBA committees, to respond to this request. John Sherman, Co-Chair of the Corporate Social Responsibility Committee, chaired the working group.
‘We had to compile something in a short period of time and tried to draft things where there was no controversy’, he recalls. ‘We managed to get it done and submitted, and the OECD liked it. They asked us to speak directly to them, and we then answered a more substantive questionnaire.’
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'Protect, Respect and Remedy'
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Alice de Jonge, senior lecturer in international trade law and Asian business law at Monash University in Melbourne, is a member of the working group. ‘I found the whole process of reviewing the guidelines fascinating’, she says. ‘One of the most notable features of the process was the degree of consensus on the need to reform the guidelines.’ In particular, she notes, there was agreement that the reforms should bring the OECD guidelines into line with the UN’s ‘Protect, Respect and Remedy’ framework, devised by special representative of the UN Secretary-General on Human Rights and Transnational Corporations and Other Business Enterprises, Professor John Ruggie.
The area of human rights was one that the IBA group identified as a priority for updating. ‘The OECD accepted that human rights was a key area and needed a separate chapter, in the same way that one had been envisaged on the environment and labour rights’, Sherman says.
‘OECD Watch reported that NGOs had filed 96 cases against corporations for alleged violations of the OECD guidelines between 2001 and 2010.’
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The working group recommended that multinational corporations should conduct human rights due diligence in line with the Ruggie framework. Human rights standards should be set, along with guidelines to help companies identify the human rights impact of their operations. There should be regular monitoring and reporting on human rights performance, and company-level grievance mechanisms should be set up to provide access for remedies.
‘The submission from the IBA was tremendous’, says Marie-France Houde, senior economist at the OECD. She confirmed that the recommendations on human rights will be taken on board, through the OECD’s consideration of the Ruggie framework.
Tackling accountability down supply chains may be more problematic. In 2003, the OECD investment committee issued a statement that the guidelines were part of the OECD Declaration and Decisions on International Investment and Multinational Enterprises, the IBA working group submission explains. But investment was not defined and no guidance was provided on the investment nexus. This means that NCPs have rejected complaints because of the lack of investment nexus.
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This prompted the IBA working group to recommend a new chapter in the OECD guidelines to deal with companies’ relationships with their supply chains. Again, the Ruggie framework was recommended as a template. It suggested that due diligence should be conducted ‘without regard to investment nexus’.
Negotiations at the OECD start in early October and the hope is to have something ready for the ministerial meeting in May or June next year. ‘It is a tight target but we focus on things that are already in the guidelines in some cases. In others we may not be able to deliver a final recommendation and may have to continue work’, Houde says.
Supply chain issues are complex. ‘One of the problems is how to have a complaints mechanism when there are cases that you can’t do anything about’, Houde says. ‘For example, if a given spot-market transaction is completed and subsequently a buyer finds out that human rights were violated down the supply chain, what can a National Contact Point do?’ adding, ‘As a minimum we would expect due diligence to be the baseline’. ‘There is also the question of continuous improvement. Companies should draw on good practice.’
In addition to human rights and supply chains, the OECD is giving special attention to the environment as an area where the guidelines need to be strengthened. The IBA working group recommended that the environment chapter of the guidelines should take climate change into consideration and encourage multinational companies to reduce their carbon footprint.
The IBA working group also recommended that the guidelines should incorporate the OECD’s risk awareness tool for multinational enterprises in weak governance zones and that the NCP process should be more independent and transparent.
‘One of the problems we identified was the lack of use of the guidelines’, Sherman says. ‘They lack credibility and there is a lack of adherence to decisions.’ If the changes bring the OECD process up to date, then the guidelines have a lot of potential, he believes. ‘It’s the only national-level dispute resolution process. In countries such as the UK, Australia and the Netherlands it is treated very seriously. It has the potential to play a significant role in providing access to remedy.’
One group that has been keeping a close eye on the revisions is the NGO OECD Watch. In June, it produced a report, ‘10 Years On’, which looked at how effective the OECD guidelines have been. ‘Lack of political will, lack of sanctioning powers and lack of coherent implementation have significantly diminished the potential value of the instrument’, the report concluded. It said that the revisions were a ‘make or break opportunity to stop corporate abuses, particularly in developing countries’. It warned: ‘If no drastic improvements are achieved, civil society will be forced to look elsewhere to resolve the key problems facing affected peoples and the natural environment.’
OECD Watch reported that NGOs had filed 96 cases against corporations for alleged violations of the OECD guidelines between 2001 and 2010. Most cases involved environmental damage and human rights abuses and occurred in multinational corporations’ supply chains. NCPs ‘rarely contributed to resolving specific conflicts’, the report said, and only five of the 96 cases have resulted in ‘real improvements’ in corporate behaviour.
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Patricia Feeney of NGO RAID is one of the authors of the OECD Watch report. She is also an external representative for NGOs on the UK NCP. She believes that even in their current form, the guidelines have the potential to improve company behaviour. ‘The need for a global corporate accountability standard is more pressing than ever’, she says, adding that if governments agree to adopt the due diligence principle, ‘it will inevitably mean that some of the obstacles to handling supply chain issues should disappear’. She adds: ‘In OECD Watch’s view, the greatest need is for NCPs to have the independence, investigative and fact-finding capacities to conduct impartial assessments of complaints. There should be consequences for companies that are found to be responsible for repeated, serious breaches of the guidelines.’
Houde is aware that the update has raised expectations about what can be achieved. ‘This is a real challenge’, she says. Richard Howitt, the European Parliament’s spokesperson on corporate social responsibility, highlights redress as a key issue where expectations are high. ‘It is not realistic to think we will soon have a victim-led approach’, he warns. But he adds that adoption of the Ruggie framework by the OECD means there will be ‘an effective step-by-step approach’.
‘The OECD has the most credibility at the moment’, Howitt argues. ‘It is unique because governments have signed up to it. Despite the criticism it is very important. Cases going to NCPs set precedents.’
Howitt shares the widespread concern that there is a big difference in the level of commitment that governments have shown to the OECD guidelines. ‘Governments are cutting back and do not want to take on issues that have big resource implications. But this will need more resources – and it will have to be incremental.’
Law firms can help, De Jonge suggests. ‘They should make a deliberate effort to allow staff to contribute to the work of NCPs, which are incredibly under-resourced at the moment. Such work – pro bono if necessary – would help to remind lawyers of the original reason – a belief in justice for example – many joined the profession in the first place’, she says.
‘If no drastic improvements are achieved, civil society will be forced to look elsewhere to resolve the key problems facing affected peoples and the natural environment’
OECD Watch
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Sherman notes that is important that the various approaches taken by NCPs in different countries have ‘an equivalent functionality’. He also points out the need to take local issues into account. ‘The OECD only operates in 30 countries. In Malaysia, former OECD domiciled businesses have been taken over by Malaysian companies. What happens in a situation like this?’
Even though the company may be taken to an NCP in an OECD country, if the harm has been done elsewhere, then the remedy needs to be found on the ground, Sherman suggests. ‘These are very tough issues but they need to be resolved. Ruggie says that lots of different kinds of solutions need to be applied. For example, there need to be remedies in home and host states.’
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Fig leaf for governments?
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Institute for Human Rights and Business, agrees. ‘There has been a perception that the guidelines were a law-free zone, and there was dissatisfaction in most countries that the OECD guidelines are a fig leaf for governments and business instead of legal action. But Ruggie talks about a smart mix – you need both.’
Ruggie’s work focused on standardisation across the board, Kathryn Dovey, a director of the Global Business Initiative on Human Rights, adds. She predicts that this now looks achievable because the OECD guidelines are being revised at the same time as the International Finance Corporation (IFC) guidelines have been updated, and when the international standard ISO 2600 is being introduced. ‘They were a long time coming’, Dovey says. ‘The ISO standard is complicated but it’s aligned with Ruggie on the business and human rights framework. It shows that it is possible to standardise the rules.’
A trickier issue is the status of NCP decisions. ‘How are the decisions reflected in a court of law – in other words, what is the status of the OECD decisions?’ Morrison asks. The OECD needs to be seen as part of the jigsaw, he suggests. ‘There are other mechanisms like contract law. The work being done on host government agreements, joint venture agreements and public-private partnerships is important.’
Houde suggests that it is not fair to put all the weight on companies. ‘Governments have responsibilities too. We know in terms of human rights there are severe violations in some places. But there is a question about how much companies can do about this. Companies can’t replace the government.’
The UK and the Netherlands show what the system can be like at its best when it is aligned with government, Dovey notes. ‘But there might be situations where a government is facing both ways’, she warns. ‘It can be saying to the same company that they have broken the rules on the one hand but the government can be investing in that company on another. There is a disjoint in such cases between different arms of government.’
International law must bring companies to account, Feeney believes. ‘We have had years of experimentation and there is a need to move beyond “voluntarism” and “CSR”. We need to see developments in international law so that companies and other non-state actors can be held liable for violations of human rights. Given the obstacles to access to justice, victims of human rights violations – particularly those from countries in conflict or weak governance – need to have the opportunity of seeking a remedy in the jurisdiction of the parent company.’
Case study: Argentina
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Juan Sonoda, partner at Beretta Godoy in Buenos Aires, is a member of the IBA working group. He describes the impact the OECD guidelines have had in his region.
‘In Argentina the contact point is not independent. The office is lodged in the Ministry of Foreign Affairs. It’s not much use but there have been a few instances where it has been activated. For example, in 2004 there was a conflict over a pulp mill. The River Uruguay borders Uruguay and Argentina, and a Finnish-based multinational wanted to build a pulp mill at Fray Bentos in Uruguay. Argentina’s environmental groups strongly objected. The Finnish NCP ruled in 2006 that the multinational had complied with the OECD guidelines. The case eventually went to the International Court of Justice in The Hague and was settled in favour of Uruguay. The court said that although the multinational had acted without consulting Argentina, Argentina could not force them to close the mill, because there was no proof of environmental damage.
‘You can’t look at the NCPs as an isolated framework. They should be seen in a broader context. You need to go back to the 1990s to policies on Latin America pursued by richer countries. There was a view that the free market was the key to developing the region. But this did not work well.
‘In Argentina, when foreign investment came into poorer areas, it was often to exploit natural resources or to provide utilities. In some cases there may have been sound legal frameworks and wonderful contracts, but ten years on none of this was proved to have worked. It means that contracts have been repealed, and that Argentina has many cases of violations of bilateral investment treaties.
‘The investment strategy proved unrealistic for poor communities and the businesses that were set up were not sustainable. They created huge controversy and now the question is how to make investments that are sustainable.
‘Where human rights are concerned, in some cases there is a direct enforcement mechanism of the UN Charter – for example the European and US Human Rights Acts. But in these cases it is governments, not the companies, doing the enforcement.
‘A key issue is how you can persuade a private company to cover things that perhaps should be carried out by the domestic government. You can’t force companies to train people or educate them so that the companies can get a social licence to operate. If there is a particular domestic law, you can’t force companies to adopt higher standards. For example, in the extractive industries, it is often the smaller companies that create bigger problems. They tend to take a short-term view and aren’t too concerned about the impact that they’re having on the environment or communities, which can be harmful.’
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Adrienne Margolis is a freelance journalist. She can be contacted by e-mail at adrienne.margolis@googlemail.com.
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