How can responsible business authorities stay ahead of the curve?

This article was originally published on OECDONTHELEVEL on 31 July 2018

Legacy blog series no. 5

In the fifth post of his Legacy Blog Series, Roel Nieuwenkamp looks at how the government authorities responsible for implementing the OECD Guidelines for Multinational Enterprises can be strengthened.

RN-Legacy-Blog-callout1Time to discuss procedures: not always the most inspiring theme in the field of corporate responsibility, but extremely important. There are many ways to set up National Contact Points (NCPs), which are the responsible business authorities that are established by the OECD Guidelines for Multinational Enterpirses. But many people have asked me the question: which NCP model works best?

The procedures that NCPs have to follow are in fact very good. They do not prescribe a specific institutional structure, but they are very clear about the binding criteria that all NCPs have to meet: i.e. be visible, accessible, transparent and accountable. Also, when NCPs handle cases/complaints – they have to do this in a way that is impartial, predictable, equitable and compatible with the OECD Guidelines.

The procedures also state that NCPs should ‘retain the confidence of social partners and other stakeholders’. They are also expected, whatever their composition, to develop and maintain relations with representatives of the business community, workers’ organisations, other non-governmental organisations.’ Another essential element concerns resources: governments commit to make available human and financial resources to the NCP so they can effectively fulfil their responsibilities.

When the time comes for the next update of the OECD Guidelines, I have identified nine areas where procedures for NCPs can be improved and strengthened.

1. The structure of NCPs

So can governments choose the structure that best fits their national context? Yes and no. They can, as long as they comply with the binding criteria.

But now forget about all these rules. Which NCPs really do work well?

In fact, the following NCP structures have delivered the most in terms of mediated agreements in complaints procedures and general NCP activities:

  • The tripartite model consisting of government, employers’ and workers’ representatives around the table on an equal footing is the basis for the French, Belgian, Latvian and Swedish NCPs. This model has over the years delivered some good results. A potential downside of this model is that NGOs feel excluded from decision-making on cases.
  • The independent model has been followed by the Danish, Norwegian, Dutch and Lithuanian governments. Their NCPs are composed of independent experts (sometimes appointed by the government and sometimes nominated by stakeholders). Looking back at the specific instances handled by these NCPs in the last few years, they have achieved strong results not only in terms of attracting cases, but also in terms of helping parties reach agreement.
  • Some NCPs have adopted hybrid structures which have also delivered good results. The Swiss NCP, for instance, is located in government but with a diverse advisory body made up of independent experts. The UK NCP is also located in government, and has a steering board made up of representatives from government and external stakeholders. The UK steering board can review cases to check whether they comply with the UK NCP’s rules of procedure. Both NCPs also use professional mediators in their case-handling.
  • Some models of NCPs located within government with advisory boards can work well as long as the NCP has a strong inter-departmental set up and the advisory board is representative of diverse external stakeholders. This is the case for the US and German NCPs.

Is there a single best model? No, because success is highly dependent on a range of factors. In my experience, impartiality and resources are the two factors most critical for success. A lot also depends on the personal motivation and competences of the NCP secretariat,  staff turnover, a constructive relationship with civil society, etc. In fact the sentence in the Procedural Guidance about the ‘confidence of the social partners and other stakeholders’ sums it all up. All governments should find a way to ensure that confidence, knowing that any model is always a balancing act between stakeholders.

Is there a single worst model then? Yes: the ‘mono agency’ NCPs that are located in a single ministry and do not include other government departments or stakeholders in their institutional arrangements. Additionally, such NCPs are traditionally based in ministries with ‘economic’ portfolios such as economy or trade, or in “pro-business” investment agencies, thereby risking perceptions of bias amongst civil society stakeholders. This model should be phased out as soon as possible as it undermines the credibility of the whole system. There is also a tendency in those models to dedicate no resources to these NCPs. In other words: in the future a ‘whole of government’ approach, embedding other ministries in the NCP should be a condition for all NCPs. The involvement of other ministries is necessary to ensure that the NCP has expertise directly available in areas such as human rights, labour and the environment. Moreover,  the inclusion of various government departments in the institutional arrangements of the NCPs brings the necessary checks and balances and therefore strengthens impartiality. Finally, the inclusion of stakeholders in the NCP functioning, either through a multi-stakeholder advisory or steering board, or by including stakeholders as independent members of the NCP, should be made a requirement for effectively functioning NCPs.

2. NCP peer reviews

One of the hallmarks of progress made by the NCP system over the last few years has been the support of the G7 Leaders in 2015, indicating that they would ensure their own NCPs are effective and that they would “lead by example”. They also called on the OECD to promote peer reviews and peer learning. In a future update, it makes sense that the peer reviews become mandatory, something quite common in the context of other OECD policy areas.

3. Monitor implementation

A challenge that many NCPs face today is that they do not measure the success of their promotional work, in terms of business awareness or uptake of the OECD Guidelines. Therefore it would make sense that NCPs regularly monitor at a minimum awareness of the Guidelines in their business community. NCPs in Switzerland, the Netherlands, Denmark and Ukraine are already engaging in such activities. The Dutch NCP introduced a target of a 90% level of awareness by companies.  Following a letter by the Dutch Minister of Foreign Trade and Development to the CEOs of the biggest multinationals, calling their attention to the importance of the OECD Guidelines, the Dutch NCP found that awareness and commitment dramatically improved.

4. Complaint mechanism evidence threshold

One of the regular bones of contention about the complaints mechanism is the “evidence threshold”. Some NCPs in the past have dismissed cases because a complaint could not be fully substantiated. Civil society and trade unions have expressed concern that the threshold of substantiation in NCP cases can end up being even higher than for judicial proceedings. This is not an ideal status for a problem solving mechanism that is not legally binding. During the 2010-11 negotiation of this issue, the intention was for the threshold to be reasonable plausibility and not full proof. I remember summarising the discussion at the time:  no angry emails or newspaper article clippings, but no full proof either.

5. Government buy-in

Over the years we have seen some countries becoming adherents to the Investment Declaration and thus the OECD Guidelines only to then do little with the RBC work. Frankly speaking, such countries represent a reputational risk to the whole system. Therefore in the future my proposal would be that only countries with a functioning NCP should be able to adhere to the Investment Declaration. It should not be enough to present a nice plan to make an NCP. We have been disappointed by those plans too many times.

6. Improving transparency

As transparency is such an important part of the complaint mechanism, I would make the publication of an initial assessment mandatory unless there is a very important confidentiality issue at stake which warrants protection of either the complainants or the companies. In addition, many NCPs follow up on the recommendations they make in the final  statement. For example, they can monitor to what extent the company has implemented the recommendations. Often the monitoring takes place within a year. This is essential to find out whether companies follow the recommendations made by the NCP. As this is really good practice, I suggest such follow up also becomes mandatory.

7. Policy coherence

Which minister would want to give a subsidy to a company that is not prepared to engage in an NCP case? Which Minister wants go on a trade mission with a company that has ignored retreated recommendations made by an NCP? If a company isn’t respecting human rights, it seems illogical to award it a big government contract. Canada has been leading the way on such policy coherence by denying trade support to companies that refuse to participate in NCP cases. Others are following suit. The OECD Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (also known as the “Common Approaches”) encourages members, via their Export Credit Agencies (ECAs), to promote the OECD Guidelines, consider the outcomes of NCP cases when undertaking project reviews, as well as to give consideration to policy coherence with the OECD Guidelines. Obviously for reasons of policy coherence, governments should also make a link to public procurement and economic diplomacy instruments. Codifying these good practices further would be a major step towards policy coherence on RBC.

8. NCP appeal mechanism

The “substantiated submission” procedure provides some sort of an appeal mechanism on process. This was used for the first time in 2017 when OECD Watch asked the OECD Investment Committee to review the Australian NCP. Substantiated submissions can be made by other NCPs, business (through BIAC), trade unions (through TUAC) and NGOs (through OECD Watch). It is not intended to second guess an NCP on the substance of a case – it is all about process. It is however an important mechanism to make sure that NCPs handle cases in conformity with the Procedural Guidance. I like this process but there are still improvements to be made as to how these issues are handled. At the very least, if a case is brought by one NCP against another NCP, it needs to be decided on the basis of consensus minus 2 (i.e. the involved governments would be excluded from the decision-making process). In cases where just one NCP is involved, it makes sense to follow a consensus minus one rule. An even better and more efficient option would be for an independent panel of (former) NCP experts to take a look at a case and make recommendations to the NCP.

9. Multi-NCP complaint procedure

A long-term solution needs to be found for the handling of complaints involving many different NCPs and where coordination is a huge challenge. To enable the diligent handling of such cases, an international mechanism –something like a Global Contact Point – could be useful. The Global Contact Point could be an international panel of experts that could handle the case and provide mediation and recommendations on behalf of the NCPs that are involved Only cases that are of a certain level of complexity with  an international dimension would be dealt with by such a panel. This option would only be activated at the request of the NCPs involved.

Stronger NCPs mean better business conduct

With these nine recommendations, I hope to have given some food for thought on how the procedures for NCPs can be improved, to make sure these important responsible business authorities stay ahead of the curve.

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The Legacy Blog Series

Blog 1: Making globalisation work for all and corporate responsibility
Blog 2: Responsible business @OECD: Plain language please!
Blog 3: Staying ahead of the curve on corporate responsibility: Climate change, digitalisation and animal welfare
Blog 4: Staying ahead of the curve on corporate responsibility: Indigenous peoples’ rights, taxation and disclosure
Blog 5: How can responsible business authorities stay ahead of the curve?
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Staying ahead of the curve on corporate responsibility: Indigenous peoples’ rights, taxation and disclosure

This article was originally published on OECDONTHELEVEL on 29 July 2018.

Legacy blog series no. 4

 In the fourth post of his Legacy Blog Series, Roel Nieuwenkamp encourages the responsible business conduct community to start planning for the next update of the OECD Guidelines for Multinational Enterprises.

RN-Legacy-Blog-callout1We know already that the OECD Guidelines for Multinational Enterprises are considered to be the world’s leading instrument on corporate responsibility. But, after 42 years in existence and 5 updates, the question is: are they still fit for purpose? Are they still on the cutting edge of business ethics?

My previous blog covered three of the topics that I think need to be included in the next update of the OECD Guidelines. This blog covers three further topics: rights of indigenous peoples, taxation and disclosure.

Unfinished business: Indigenous peoples’ rights

The lack of attention to indigenous peoples’ rights is a ‘moral hole’ in the OECD Guidelines. At the time of the 2011 revision, we could not fill that hole as some countries did not support the translation of the relevant UN and ILO conventions into this corporate responsibility agreement. Much has changed since then. It is now considered international good practice to consult with local communities and indigenous peoples prior to operations and to seek their consent.

For example, ILO Convention No. 169 concerning Indigenous and Tribal Peoples in Independent Countries requires that: indigenous peoples are consulted prior to exploration or mining activities on their land and that they are able to participate in the benefits of such activities and are compensated fairly for damages they sustain. Another prominent concept is Free, Prior and Informed Consent (FPIC), which is contained in the United Nations Declaration on the Rights of Indigenous Peoples. While these instruments address the responsibilities of States, it is increasingly expected that the private sector does business in a way that upholds these rights and does not interfere with States’ obligations under these instruments. Businesses are subject to growing expectations to foster full respect for the human rights, dignity, aspirations, cultures, and customary livelihoods of indigenous peoples.

This is why the International Finance Corporation (IFC) has included indigenous peoples’ rights in its Environmental and Social Performance Standards. The International Council for Mining & Metals (ICMM) an influential group of mining companies, has committed to Free Prior and Informed Consent for Indigenous Peoples. The Chinese Guidelines for Social Responsibility in Outbound Mining Investments endorsed by the Chinese Government have also embedded FPIC. Another example is the Canadian government which has changed its position and now fully supports FPIC. This is significant as a large number of mining companies in the world are listed on the Toronto Stock Exchange.

Let’s not reinvent the wheel at the OECD with respect to these issues. Inspiration can be found in all the above-mentioned international instruments. The  guiding language on indigenous peoples most relevant for updating the OECD Guidelines can be found in the IFC Performance Standards, in particular with respect to identifying, avoiding and addressing impacts on Indigenous Peoples’ identity, natural resource-based livelihoods, food security and cultural survival.

Taxation as a core corporate responsibility issue

“I don’t care if it’s legal, it’s wrong.” This quote from former US President Obama about tax avoidance illustrates the shift in thinking about tax from issues from a strictly legal perspective, to the domain of corporate responsibility. Global tax avoidance has been attracting increasing attention and ire over the past years. Public outrage over tax avoidance has been very visible. Nowadays company executives of the world’s largest MNEs are publicly taken to task over tax avoidance issues. In the midst of the financial crisis, citizens of EU countries like Greece and Portugal were furious to learn that their multinational enterprises paid almost no taxes because of fiscal arrangements involving the same jurisdictions that had put pressure on them to implement severe austerity packages. Likewise, tax base erosion and profit shifting (BEPs) has been the cause of outrage in developing countries and is increasingly viewed as an impediment to development. The Luxleaks, SwissLeaks and Panama Papers scandals exposed instances of tax avoidance that shocked the general public. They have demonstrated that corporate tax responsibility is not just a legal issue but also an ethical one.

In response, the OECD has been active in in developing creative solutions to curb these practices. It elaborated a comprehensive action plan on Base Erosion and Profit Shifting (BEPS) which has been endorsed by the G20.

Responsible tax planning as an expectation of corporate responsibility is not a new concept. Indeed the OECD Guidelines have long included a chapter on taxation. Under the OECD Guidelines, enterprises are already encouraged to design their tax governance and tax compliance in a responsible manner. Furthermore, enterprises are called on to comply with both the letter and spirit of the tax laws and regulations of the countries in which they operate.

To date, only one tax related complaint has been filed under the complaint mechanism for the OECD Guidelines, known as the National Contact Points (NCP). In 2012, the Swiss NCP considered a submission based on a leaked report from an auditing firm that suggested that commodities giant Glencore was avoiding paying taxes in Zambia. The Swiss NCP undertook mediation with the parties which resulted in constructive engagement and ultimate agreement between the parties. Governments should be actively promoting responsible tax planning as a corporate ethics issue.

The OECD/G20 BEPS project has already been a game changer in regards to addressing tax avoidance strategies and increasing transparency of fiscal policies. Leaks will continue to expose companies’ fiscal conduct in practice. In times of ‘radical transparency’, companies have to take a critical look at their tax policies and verify whether their policies are not only legally compliant but also ethically sound. It therefore would make sense to update the taxation chapter in a future revision of the OECD Guidelines to align with the latest developments of the BEPS project and the many follow up actions.

Sustainability disclosure

The chapter on disclosure of the OECD Guidelines call for timely and accurate disclosure on all material matters regarding the corporation, including the financial situation, performance, ownership and governance of the company. The OECD Guidelines also encourage a second set of disclosure or communication practices in areas where reporting standards are still evolving such as, for example, social, environmental and governance (ESG) risk reporting. However, the disclosure chapter no longer reflects good practice and is becoming outdated in the light of recent developments. The demand for more transparency and information on how companies deal with human rights, environmental, social and other “non-financial” issues has rapidly grown. Reporting in conformity with the standard of the Global Reporting Initiative is now standard practice and Integrated Reporting is an established concept.

In the EU, a ground breaking directive issued in 2014 made sustainability reporting mandatory (Directive 2014/95/EU).  In 2017, the EU Guidelines on non-financial reporting to enhance business transparency on social and environmental matters. The EU Guidelines supplement the existing EU rules on non-financial reporting. They are based on and reference both the OECD Guidelines and the sector-specific OECD due diligence guidance instruments throughout.

A particular trend is increasing demand for information on how companies are identifying and addressing impacts in their supply chains. Reporting on due diligence is an integral step of the due diligence process and has been recognised in legislation introduced in the UK and France, as well as under the EU Guidelines. For example, EU importers of tin, tungsten, tantalum and gold covered by Regulation (EU) 2017/821 will have to publicly report on their supply chain due diligence policies and practices for responsible sourcing for these metals and minerals.

These developments are generating a shift from traditional, voluntary and sometimes “PR-oriented” corporate reporting towards more meaningful and user-oriented disclosure. The next revision of the OECD Guidelines should take into account these developments and update the chapter on disclosure accordingly.

Staying ahead of the curve 42 years on

As mentioned in the two blogs on whether the OECD Guidelines are still fit for purpose there is a lot of food for thought for a future revision of the instrument. I have addressed some of these issues more in depth; however there are several further elements also merit attention in the context of a future revision:

  • The language used in the OECD Guidelines needs to be modernised.
  • The link to the Sustainable Development Goals should be made explicit and elaborated on.
  • The wording on value chain responsibility should be made more accessible, in line with the recently-adopted OECD Due Diligence Guidance for Responsible Business Conduct.

 


Staying ahead of the curve on corporate responsibility: Climate change, digitalisation and animal welfare

This article was originally published on OECDONTHELEVEL on 28 OECDONTHELEVEL July 2018.

Legacy blog series no. 3

In the third post of his Legacy Blog Series, Roel Nieuwenkamp encourages the responsible business conduct community to start planning for the next update of the OECD Guidelines for Multinational Enterprises.

RN-Legacy-Blog-callout1The OECD Guidelines for Multinational Enterprises are the world’s leading instrument on corporate responsibility. They are considered unique because they come with a government-backed grievance mechanism and they cover all areas of business ethics. The latter point may start raising eyebrows.

Without progress, all leaders become laggards. In other words, the OECD Guidelines need to keep evolving constantly to keep up to date with developments in society. Major revisions of the OECD Guidelines have taken place approximately every 10 years since they were first adopted in 1976. As the former chair of the negotiations on the most-recent revision in 2011, I know how complex and politically sensitive this process can be. The last ‘revolutionary’ revision led to the development of value chain responsibility as well as the addition of a chapter on human rights.

I believe that the OECD Guidelines are still very much fit for purpose. Implementation, implementation and implementation will continue to be the top priority in the coming years. However,  I also sense and hope that the political climate will be conducive to a further update in 3 years or so. That means it is time to start preparing the ground. On the basis of my experience in this field over the last decade, I have handpicked six candidate topics that should be part of the next revision. This blog covers climate change, harmful content and fake news on the internet, and animal welfare. My fourth legacy blog continues with indigenous peoples’ rights, taxation and disclosure.

Climate change

The OECD Guidelines expect companies to avoid causing or contributing to negative environmental impacts. They also expect companies to seek to prevent or mitigate adverse environmental – including climate – impacts directly linked to their operations, products or services by a business relationship. To achieve this, businesses are called upon to carry out due diligence throughout their value chains to identify, prevent and mitigate adverse impacts and account for how they are addressed. Due diligence, importantly,  applies not only to actual impact but also to the risk of impact. This is particularly relevant where emissions are concerned as the scale of climate risk is still largely unknown.

The National Contact Points – the grievance mechanism attached to the OECD Guidelines – have already been seized with climate related cases involving multinational enterprises. For example, Oxfam Novib, Greenpeace, BankTrack and Friends of the Earth recently filed a complaint with the Dutch NCP against ING Bank for failing to sufficiently commit and contribute to the targets set in the Paris Agreement on Climate Change. Mediation of this case is ongoing.

The OECD Guidelines chapter on environment encourages enterprises to continually seek to improve corporate environmental performance, both within the enterprise and, where appropriate, within their supply chains. This can be achieved by encouraging activities such as: development and provision of products or services that reduce greenhouse gas emissions; providing accurate information on greenhouse gas emissions and exploring and assessing ways of improving the environmental performance of the enterprise over the longer term, for instance by developing strategies for emission reduction.The disclosure chapter of the Guidelines also encourages social and environmental risk reporting, particularly in the case of greenhouse gas emissions, as the scope of their monitoring is expanding to cover direct and indirect, current and future, corporate and product emissions.

These expectations suggest that enterprises should not only be concerned with their direct emissions and impacts on climate change but that they should also be aware of their carbon footprint, meaning climate impacts, throughout their supply chains and that their due diligence efforts should be targeted accordingly. A value chain approach is particularly important in the context of climate change as the majority of emissions attributable to enterprises are often generated throughout their supply chains.  For example, this GHG Protocol factsheet reports that Kraft Foods, one of the world’s largest food and beverage conglomerates, found that value chain emissions comprise more than 90% percent of the company’s total emissions. A supply chain approach, however, has yet to be fully integrated in the field of corporate emissions management.

The generic provisions in the OECD Guidelines need to be revised in the light of the Paris Agreement. In particular, an expectation needs to be added that companies should contribute to the implementation of the Agreement. This is obviously an open-ended ambition. The definition of what can be considered a reasonable contribution by companies themselves, apart from abiding by relevant laws and regulations, needs to be clarified in the near future. In 2017, the industry-led Task Force on Climate-related Financial Disclosures (TCFD) developed a set of recommendations for voluntary climate-related financial disclosures. Their recommendations, such as making a 2 degree Celsius scenario analysis, could provide inspiration for a more specific climate related responsibility in the OECD Guidelines.

Fake news and harmful content

One of the urgent areas to be included in the next revision of the OECD Guidelines relates to the digital economy. “It has been clear that we haven’t done enough to prevent these tools to be used for harm as well. That goes for fake news, foreign interference in elections and developers misusing people’s information. We did not take a broad enough view on our responsibility. That was a mistake and I am sorry for it.”  This quote by Marc Zuckerberg, CEO of Facebook on 22 May 2018 in the European Parliament says it all.

A big debate is underway about how to capitalise on the promise of the digital economy while keeping the Internet free, open, and secure.  The internet has brought us immense benefits, including access to information, economic empowerment, education and communication. However, extremist and false content have exploited on the biggest internet platforms, undermining core institutions such as a free and open media and democracy. There is a tendency to legislate these Internet issues. However, such rules risk creating opportunities for authoritarian regimes to limit freedom of expression and of the press.

Independent of government duties in this regard, it is important that Internet companies develop and strengthen their policies and advertising strategies to combat harmful content and reinforce the essential role of trustworthy media organisations. Multinationals such as Facebook, Twitter, and Google should do more, using refined algorithms and improved human oversight, to identify and marginalise fake news reports, fake political ads, extremist content and foreign-generated posts that intend to manipulate elections.

Animal welfare

Animal welfare is an area of corporate responsibility currently missing in the OECD Guidelines and something to be dealt with in a future revision.  Significant animal welfare risks may arise in agricultural value chains. Examples include: limitations on space in individual stalls restricting the movement of animals, high stocking densities in groups increasing the potential for disease transmission and injurious contact with others, barren environments leading to behavioural problems, feeding diets that do not satisfy hunger, and breeding for production traits that heighten disorders.

According to the IFC, improving animal welfare makes good business sense. Disease is a good example of a joint threat to animal welfare and business sustainability. The World Organisation for Animal Health (OIE) estimates that morbidity and mortality due to animal diseases cause the loss of at least 20% of livestock production globally – which represents at least 60 million tonnes of meat and 150 million tonnes of milk with a value of approximately USD 300 billion per year. In addition, affluence in many parts of the world has increased consumer choices and heightened expectations about food production standards. An IFC Good Practice Note documents that surveys in Europe and North America found that the majority of consumers care about animal welfare and report a willingness to pay significantly more for animal products they perceive to have come from farm animals raised humanely.

It would make sense for the OECD Guidelines to refer to the comprehensive guiding principles developed by the World Organisation for Animal Health (OIE). The members of the OIE adopted a definition of animal welfare in order to clarify on an international scale what it actually involves.[1] The nine OIE standards address specific welfare challenges, including the transport and slaughter of animals, production systems for cattle and poultry, the control of stray dog populations and the use of animals in research. These standards are based on scientific evidence and the fundamental principles for animal welfare are known as the ‘five freedoms’: freedom from hunger, thirst and malnutrition, from physical and thermal discomfort, from pain, injury and disease, from fear and distress, and to express normal patterns of behaviour.

The OECD-FAO Guidance for Responsible Agricultural Supply Chains adopted in 2016 already recognises the importance of animal welfare. An adapted version of the language from the model policy in this guidance could be a useful starting point for the next revision of the Guidelines, according to which: “Companies should support animal welfare in their operations, and value chains including by: striving to ensure that the ‘five freedoms’ for animal welfare are implemented, i.e. freedom from hunger, thirst and malnutrition, physical and thermal discomfort, pain, injury and disease, fear and distress, and freedom to express normal patterns of behaviour. Companies should ensure high standards of management and stockmanship for animal production, that are appropriate to the scale of their operations, in accordance with or exceeding OIE’s principles.”


 


[1] According to the OIE’s definition recognised by more than 170 countries, animal welfare means how an animal is coping with the conditions in which it lives. An animal is in a good state of welfare if (as indicated by scientific evidence) it is healthy, comfortable, well nourished, safe, able to express innate behaviour, and if it is not suffering from unpleasant states such as pain, fear and distress.

Responsible business @OECD: Plain language please!

This article was originally published on OECDONTHELEVEL on 14 July 2018.

In the second post of his Legacy Blog Series, Roel Nieuwenkamp makes a plea for the use of plain language to help advance the responsible business conduct agenda.

RN-Legacy-Blog-callout1Representing the leading international instrument on corporate responsibility can be frustrating at times. Part of that frustration is self-inflicted. Much of it has to do with communication. The bureaucratic jargon has often haunted me.

It is easy to understand why this jargon exists, as vagueness or “constructive ambiguity” can help to find diplomatic solutions. Take this sentence: “The OECD has a non-judicial grievance mechanism, the National Contact Point system that handles specific instances from interested parties. The basis for this mechanism is the OECD Guidelines for Multinational Enterprises.” This is complete nonsense for most people.

The first hurdle is that most people do not know who or what the OECD is. It is the Organisation for Economic Co-operation and Development. I always explain that it is an international organisation like the United Nations, but for a group mostly comprised of advanced economies.

The second hurdle is the title “OECD Guidelines for Multinational Enterprises”. What are they about? I then have to explain that they are in fact recommendations on corporate responsibility. But the title gives nothing away. It doesn’t clarify, for example, that the OECD Guidelines are an international agreement that include a legally binding component with the same legal status as an international treaty or convention. I call them the “Paris agreement on corporate responsibility”, or the “OECD agreement on responsible business”.

Then comes the substance of all this. A lot of the language is very hard to read as it is negotiated language. Many lawyers have shuffled the sentences up and down. A case in point is the term‘specific instances’. Who could ever guess what a specific instance is? It is a terrible term for a complaint. Why not call it a complaint? Well, because many governments at the time did not feel comfortable with that term. Anyway: it is a complaint submitted under the OECD Guidelines….

Now comes the the most tragic term of all: NCPs, an acronym for National Contact Points. What could that possibly mean? It sounds like an obscure call centre. In the UK, the NCP receives complaints about parking tickets because people think it stands for National Car Parks. In Norway it gets even weirder as some people think it stands for the Norwegian Communist Party! In the context of the OECD Guidelines, the NCPs are national authorities that promote responsible business and handle complaints. They offer mediation and, if that fails, they can provide authoritative recommendations. In other words: responsible business authorities.

A couple of years ago, I offered a bottle of champagne to anyone who could propose a better name. The winning proposals were: Office for Responsible Business or Responsible Business Authority. I gave the champagne away but we are still stuck with NCP, as the OECD Guidelines would have to be formally revised for this term to be changed. Notwithstanding the jargon, however, NCPs have the liberty to call themselves whatever they like. For example, the Danish NCP is called the Danish Mediation and Complaints Handling Institution. While the Danish NCP is one of the best performing NCPs, they clearly did not succeed in finding a much better name….

Let’s not wait for a revision of the OECD Guidelines. Let’s start using plain language now. NCPs, I encourage you all to change your name and your narrative. I will offer a nice bottle of Argentinean Malbec wine to all the NCPs that take up this challenge…

Making globalisation work for all and corporate responsibility

This article was originally published on OECDONTHELEVEL on 7 July 2018Legacy blog series no. 1

In the first post of his Legacy Blog Series, Roel Nieuwenkamp takes a look at responsible business conduct in the broader context of trade and investment policies in the globalisation debate.

The world is facing a backlash against globalisation and growing public distrust has significantly impacted a series of national elections. This goes hand-in-hand with a pushback against investment treaties and trade agreements. At the OECD, policy makers are talking about ‘Making globalisation work for all’. If we really want to achieve this, policy makers have to take a critical look at responsible business conduct.

A recurring theme in the area of corporate responsibility is that some governments fail to protect human rights and the environment and that some businesses profit from this by hiding behind these government failures.

In many cases of corporate misconduct, the underlying problem is the failure of a government. Take the example of the Rana Plaza tragedy. There were no adequate government inspections regarding building safety and no enforcement of labour standards. Local factory owners and global brands were able to benefit from extremely low costs partly because of a disengaged government. Following the disaster, the finger pointing started: brands blamed local factories for irresponsible conduct; local factories blamed brands for imposing prices that were too low.

Let’s take another example. The World Wildlife Fund (WWF) filed a complaint regarding SOCO’s exploration for oil in the treasured Virunga Park in the Democratic Republic of the Congo (DRC). Mediation by the UK National Contact Point (NCP) for Responsible Business Conduct that handled the complaint led to an agreement by SOCO not to explore for oil again in UNESCO world heritage sites. But the unanswered underlying question was: who gave the company a licence to explore for oil in the first place? The answer: the government of DRC.

Non-existent, insufficient and unenforced standards

Too often we see that standards are non-existent, insufficient or unenforced. Many governments still use low standards as a competitive advantage in the global economy. This is something the NCP complaints mechanism has revealed. The trade union complaints received by NCPs over the years have one underlying theme in common: many governments do not seriously enforce labour rights.

The best way to balance global trade demands and respect international standards is to make sure governments do what they are expected or obliged to do. States have a duty to protect their citizens from human rights abuses by business. This includes improving the rule of law, the enforcement of standards, and the fight against corruption. Corporate responsibility standards and policies are complementary to, not a substitute for, good governance.

However, a non-judicial complaints mechanism like the NCP system of the OECD Guidelines for Multinational Enterprises is an important vehicle for the promotion of responsible globalisation. If all governments had perfectly developed legal systems and fully enforced international standards, there would be no need for such a mechanism. As we do not live in a perfect world, ways to protect people and the environment outside of national boundaries are necessary.

The hard and soft law dichotomy

In the area of international investment, advanced instruments for protecting investors – wherever the investments may be located – are in place as part of bilateral investment treaties. Governments have developed protection for foreign investors precisely because some states have failing policies and inadequate legal systems to safeguard investor rights. In regions where courts are dysfunctional, corrupt, politically biased or incompetent, foreign investors want extraterritorial protection. This is understandable. Economic activities may also harm people but protection from the consequences of these same failing policies and inadequate legal systems is lacking. Added to this, the victims often do not have access to extraterritorial protection of their rights. A fundamental asymmetry exists between investment protection and people protection. We see hard protection of investments and soft protection of people. We have to ask ourselves why we protect investments with hard law and people with soft law.

This imbalance is fuelling two trends: a declining support for investment protection, which undermines trade policy in general and free trade agreements in particular; and, societal and political pressures towards mandatory legislation on responsible business conduct, such as the recent due diligence law in France and the modern slavery act in the UK. This imbalance has also led to discussions in the UN on a binding treaty on business and human rights.

The way forward

What can be done? First and foremost, governments should work on strengthening the duty to protect human rights, strengthen the rule of law, and improve the enforcement of international standards. Two complementary responses are required:

  • Make investment protection more responsible. The current practice of including merely aspirational provisions on corporate social responsibility and co-operation in this field will not do the trick. It will only lead to accusations of ‘greenwashing’ investment treaties. Meaningful reforms of bilateral investment treaties should be undertaken urgently, such as exclusion of investments that are the result of corruption. Arbitrators should also be permitted to take into account breaches of the UN Guiding Principles on Business and Human Rights and the OECD Guidelines when awarding compensation.
  • Provide extraterritorial access to remedy for people. This could be achieved, for example, by strengthening the NCP mechanism under the OECD Guidelines. The NCPs, as responsible business authorities, have a unique role to play in making globalisation work for all.

This topic will not disappear from the agenda. The abovementioned imbalance will keep haunting policy makers until they take the measures necessary to address the growing national and international concerns relating to some of the consequences of globalization.