Cut and run, or stay and improve?

By Professor Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct

Companies have an opportunity, and a duty, to improve worker conditions and the sustainability of their supply chains

Over the past year,  more and more, an appropriate principle for companies from the 46 countries that adhere to the OECD guidelines for multinational enterprises has been: “Don’t run. Stay and improve!” The Rana Plaza factory collapse was a wake-up call, even for sustainable business leaders . The central question was: what do companies, governments and civil society need to do to prevent these tragedies?

©Thinkstock.Istockphoto/kzenon

©Thinkstock.Istockphoto/kzenon

You can outsource your production but you cannot outsource corporate responsibility. The OECD guidelines state that multinational enterprises should do their due diligence to prevent and mitigate such adverse impacts, along their entire supply chains. Due diligence is the process that companies should use to manage the risks of causing or contributing to negative impacts on human rights or labour rights.

This means that companies need to identify such risks in their supply chains and to try to prevent these risks from materialising. If these do materialise, companies should try to mitigate or remediate them. The question for famous brands is how they ensure they are not linked to a breach of human rights of people working on their shirts and trousers in Bangladesh.
My feeling is that the brands should not “run” away from Bangladesh, but stay and improve the situation. Leaving will make matters even worse for the people working in the factories.

The Bangladesh Accord on Fire and Building Safety signed by companies operating in Bangladesh and the  Bangladesh Alliance for Worker Safety both represent efforts to deal with this. The accord, in particular, lifts responsible business conduct to a whole new level, by making a voluntary but binding agreement between companies and trade unions to do due diligence on building security and safety training. Will this be the beginning of a trend? Watch closely.

The message that companies should stay and improve conditions is not only relevant to the garment sector. Many discussions the OECD working party on responsible business conduct focussed on this during 2013.
If a breach of the OECD guidelines occurs, companies should first use their influence to try to improve the situation in their supply chain. If they lack the leverage to do so, they should try to increase their influence, for example through cooperating with other companies, trade unions or NGOs.

Improvement is the best solution. Disengagement is the last resort.

Likewise, the electronics industry should not run away from Congo and Rwanda, but cooperate to source tin, tantalum, tungsten and gold responsibly. Leaving the region would mean that miners will lose their jobs and livelihoods. Companies should stay, engage, and improve the situation.

And the wider international business community should not stay away from Burma, but work to improve the situation on the ground. Only responsible investment in Burma will lead to sustainable development of the country.
Financial institutions should do a careful assessment of the projects they provide finance for. If a financial institution notices – for instance through its due diligence process – that it invests in a company that breaches human rights or other principles of the OECD guidelines, simply selling the shares of that company is not the best solution. It might be the easy way out, but it does not help anybody. Very often, engagement with the company is the appropriate way forward to try to change its behaviour.

So, a few weeks in, what will the rest of 2014 bring for responsible business conduct? In at least four areas this might be a pivotal year.

Garments and textiles

First of all it is a critical year for the garment and textiles sector. This is the year in which the companies have to step up their efforts to make the accord and the worker safety alliance successful. These efforts need to focus beyond just Bangladesh and factory safety. Decent wages, responsible pricing and placement of orders are issues in the companies should include in their due diligence assessments.
To help with this process, the International Labour Organisation and OECD will organise a high level roundtable in May to discuss responsible supply chains in the textiles and garment sector with the stakeholders.

Sporting questions

2014 will also be a critical year for finding out how multinational companies should deal with major sports events, such as the football World Cup or the Winter Olympic Games.
Multinationals sponsoring these events need to be aware of human rights and environmental issues, as well as corruption and labour conditions. Will the organisers of such big sporting events – including the IOC for the Olympics and Fifa for football – and the host countries get to grips with these problems? Or will there be – in addition to blood diamonds, blood flowers, blood coal and recently blood bricks – also blood sports?

Solving problems

The national contact points (NCPs) for the OECD guidelines serve as a unique grievance mechanism on all corporate responsibility matters, ranging from labour and human rights to corruption and environment. In 2014 the NCPs will try to solve problems that vary from, for example, alleged human rights breaches by high tech telecoms companies to an alleged lack of stakeholder engagement with indigenous communities by mining companies.

Disclosure and reporting

2014 will also be a critical year for disclosure. The EU has developed a mandatory “comply or explain” reporting system, and will publish details of its plans for conflict minerals. In the US the first reports on conflict minerals are due, and companies will have report on investments in Burma.
In a time where companies in India and state owned companies in China are legally obliged to publish their corporate responsibility reports and many stock exchanges include sustainability reports in their listing requirements, perhaps 2014 be the year that a critical mass of governments support mainstreaming of such reporting.

To address these issues, and others, in June for the first time ministers responsible for corporate responsibility from all over the world are planning to meet in Paris. If progress can be made there, then 2014 could indeed be a successful year.

This article was originally published by Ethical Corporation, March 5, 2014. http://www.ethicalcorp.com/supply-chains/cut-and-run-or-stay-and-help 

 

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