National Action Plans on Business and Human Rights: Strong support for OECD’s Responsible Business Grievance Mechanism

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct and Froukje Boele, Policy Analyst Responsible Business Conduct, OECD

The year 2017 got off to a good start for business and human rights with a number of prominent National Action Plans (NAPs) finalised last December right in time for Christmas. The fresh German, Italian, Swiss and US NAPs resemble each other by placing the OECD Guidelines and the attached grievance mechanism at the forefront of efforts to promote responsible business conduct for enterprises operating at home and abroad. They also acknowledge the alignment between its Human Rights Chapter and the UN Guiding Principles on Business and Human Rights. Moreover the NAPs uphold and strengthen the National Contact Point (NCP) system of the OECD Guidelines as a means for effective problem solving, thereby supporting the OECD’s globally active grievance mechanism for responsible business as a de facto complaints mechanism for the UN Guiding Principles.

Some highlights:

Responsible Supply Chains and Due Diligence

The concept of adequate due diligence – to identify, prevent and mitigate actual and potential adverse impacts of business operations – centres at the heart of the NAPs with action-oriented language on the different OECD sectoral guidelines. Yet Governments emphasize different aspects, for example the German NAP on Business and Human Rights and the Swiss NAP on Business and Human Rights include a particular focus on helping small and medium-sized enterprises.

The US Government’s National Action Plan on Responsible Business Conduct recognises the OECD Due Diligence Guidance for Responsible Minerals Supply Chains from Conflict and High Risk Areas as a key tool for businesses to help them “respect human rights and avoiding contributing to conflict through their mineral sourcing practices.” In this regard, the German and the Italian NAP on Business and Human Rights also point to their involvement in the process of the elaboration of an EU Regulation for supply chain due diligence in this field. If adopted, the Swiss Government also commits to consider the formulation of similar legislative proposals adapted to the Swiss context.

For agriculture, both Switzerland and Italy commit to active implementation of the OECD-FAO Guidance for Responsible Agricultural Supply Chains.

Moreover, in line with Italy’s active involvement to improve standards in the textile sector, its NAP emphasizes the OECD’s work on the Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector, which will be launched next 8 February.

Sensible to the risks involved in the banking industry, Switzerland has included its support for the OECD work on a guide for due diligence in the financial sector in the NAP.

Not only do the NAPs on the whole indicate a high level of support for implementing the outcomes of the proactive sector projects, they also signal a political commitment to engage in their multi-stakeholder advisory groups going forward.

National Contact Points

The role of the NCPs to promote corporate responsibility and deal with issues relating to business and human rights is prevalent throughout the recent NAPs. Delivering on the G 7 Leaders’ Summit Declaration of June 2016, Italy, Germany and the United States recall their commitments to undergo an NCP peer review in 2017.* The plan for Germany also announces the repositioning and further strengthening of its NCP. Interestingly, the US announces it will implement procedures to ensure that stakeholders outside the US and using other languages than English can engage in the NCP process. The NAPs for Germany and Switzerland also make an operational link between the work of the NCPs and national export credits and guarantees. As such, the German NCP is upgraded as a central complaint mechanism for projects for foreign trade promotion and the Swiss Export Risk Insurance Agency is reported to have to take account of the results and evaluations by the NCP.

Policy coherence on responsible business conduct

At the same time, the national action plans send a clear message on policy coherence on corporate responsibility issues and set an example for other countries in the process of developing a NAP. They are comprehensive efforts to ensure alignment between all policies relevant to responsible business with Governments leading by example on issues such as procurement, exports credits but also responsible retirement plans (US NAP). Beyond the national level, the NAPs make a point about international policy coherence by including corporate responsibility commitments in trade and investment agreements, as well as development finance. These are complemented on an operational level with measures to train German and US diplomats abroad.

Conclusion

The high level of commitment to the OECD Guidelines, the NCP system and the OECD sector due diligence instruments will greatly contribute to their visibility and implementation worldwide. They also present promising building blocks for the 2017 German G20 efforts to address RBC and sustainable global supply chains and the Italian G7 Initiative on sustainable global supply chain management. Finally, these 2016 Christmas gifts are full of inspiration for Governments that are in the process of developing a national action plan, for example in Latin America.

*               The peer review of the Swiss NCP is ongoing.

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Responsible Algorithms in Business: Robots, fake news, spyware, self-driving cars and corporate responsibility

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

This article was originally published on OECD Insights on 13 January 2017.

algorithmsWhy is the topic of robots frequently being raised at recent conferences on responsible business conduct? For example, October last year the Polish Deputy Prime Minister noted the connection between robotisation and corporate responsibility during the opening of the Conference in Warsaw celebrating the 40 years anniversary of the OECD Guidelines for Responsible Business.

The potential negative impacts of robots or automated systems have proved cause for concern. In May 2010 there was a trillion dollar stock market crash, a ‘Flash crash’, attributed to algorithm trading or in other words: robot investors. And let’s not forget the mathematical models that contributed to the financial crisis of 2007 and 2008. Recent events surrounding fakenews, with Pizzagate as the most extreme example, are also contributing to these concerns.

What is the common denominator of these automated systems? Algorithms! These rule-based processes for solving mathematical problems are being applied to more and more areas of our daily lives. Likely, we are only at the beginning of the era of algorithms and their widespread application is raising many ethical questions for society and businesses in particular.

For example ‘Killer robots’, weapons systems that select and attack targets without meaningful human control raise questions about dehumanisation of killing and who is responsible? In December the United Nations decided to set up an expert group, in order to look into this issue following a campaign ‘Stop Killer Robots’ by Human Rights Watch and other NGOs. While self-driving cars will never be at risk of driving while intoxicated they can make decisions that might pose moral dilemmas for humans. Online face recognition technology raises concerns around privacy.  These are just a few examples.

The pervasiveness of the use of algorithms may result in many unintended consequences. In her book ‘Weapons of Math Destruction’ Cathy O’Neil describes how algorithms in combination with big data increase inequality and threaten democracy. She provides examples of the financial crisis and the housing market, but also of a college student who does not get a minimum wage job in a grocery store due to answers provided on a personality test, people whose credit card spending limits are lowered because they shopped at certain stores, etc. She also discussed predictive policing models such as those that predict recidivism and algorithms that send police to patrol areas on the basis of crime data, which can have a racist effect because of harmful or self-fulfilling prophecy feedback loops.

Scholars and practitioners in this field are beginning to consider the ethical implications of application of algorithms. Julia Bossmann of the Foresight institute described her top 9 ethical issues in artificial intelligence. Prof Susan Leigh Anderson of the University of Connecticut stated: “If Hollywood has taught us anything, it’s that robots need ethics.” Cathy O’Neil proposes a ‘Hippocratic oath’ for data scientists. Recently a group of scholars developed Principles for Accountable Algorithms. In the private sector Elon Musk, SpaceX CEO and other business leaders have founded OpenAI, an R&D company created to address ethical issues related to artificial intelligence. Amazon, Facebook, DeepMind, IBM and Microsoft founded a new organisation called the Partnership on Artificial Intelligence to Benefit People & Society. The partnership seeks to facilitate a dialogue on the nature, purpose of artificial intelligence and its impacts on people and society at large. It is encouraging that certain industry efforts are being undertaken in this area. Additionally one thing should be clear for businesses that create and use these technologies: when things go wrong, using algorithms as a scapegoat won’t do the trick.

What guidance on these issues can be found in the most important instrument on business ethics, the OECD Guidelines for Multinational Enterprises (MNE), a multilateral agreement of 46 states on corporate responsibility. Cases brought to National Contact Points, the globally active complaints mechanism of the Guidelines, provide a good illustration of what the Guidelines recommend with respect to these issues. For example, in February of 2013 a consortium of NGOs led by Privacy International (PI) submitted a complaint to the UK National Contact Point (NCP) alleging that Gamma International had supplied a spyware product – Finfisher – to agencies of the Bahrain government which then used it to target pro-democracy activists.

The NCP concluded that Gamma had not acted consistently with the provisions of the OECD Guidelines requiring enterprises to do appropriate due diligence, to undertake a policy commitment to respect human rights and to remediate human rights impacts. Furthermore the company’s approach did not meet with the OECD Guidelines’ standards to respect human rights and the engagement of the company with the NCP process was unsatisfactory, particularly in view of the serious nature of the issues. The NCP recommended that the company engage in human rights due diligence.

What is human rights due diligence and what does it mean for companies developing algorithms? Under the Guidelines due diligence is a process that should be carried out by corporations as part of a broader range of actions to respect human rights. The right to privacy, freedom of speech, freedom from torture and arbitrary detention are examples of the many potential human rights that could be impacted. Due diligence is the process of identifying, preventing and mitigating actual and potential adverse human rights impacts, and accounting for how these impacts are addressed. If there is a risk of severe human rights impacts a heightened form of due diligence is recommended. For example, significant caution should be taken with regard to the sale and distribution of surveillance technology when the buyer is a government with a poor track record of human rights. Due diligence should be applied not only to a company’s activities but across its business relationships. In the context of a company producing algorithms therefore it is not sufficient that they behave responsibly in the context of their own operations but due diligence should also be applied to ensure buyers of the technology are not using it irresponsibly. In instances where this is the case, the company that created and sold the technology is expected to use its leverage in the value chain to prevent or mitigate the impact.

A number of valuable tools to respect human rights and implement the ’know your client’ principle have been developed in the context of ICT business operations. For example, the European Commission has developed a useful guide for companies on respecting human rights in the ICT sector. TechUK, an industry association of ICT companies in the UK, in partnership with the UK government has published a guide on how to design and implement appropriate due diligence processes for assessing cyber security export risks. Additionally the Electronic Frontier Foundation has developed a guide on How Corporations Can Avoid Assisting Repressive Regimes and the Global Network Initiative has developed Principles on Freedom of Expression and Privacy.

Beyond the human rights related recommendations, the OECD Guidelines make other relevant recommendations for companies developing algorithms. For example the Environment Chapter recommends environmental, health and safety impact assessments.[1] The Consumer Chapter advises companies to provide accurate, verifiable and clear information to consumers.[2] In addition companies should respect consumer privacy and take reasonable measures to ensure the security of personal data that they collect, store process or disseminate.[3]

Businesses that create algorithms should do their due diligence on potential human rights impacts. Companies should also carry out due diligence on labour, environmental and health and safety impacts. They should provide accurate verifiable and clear information about their algorithms and take measures to protect personal data. Collaborative industry efforts on responsible algorithms are highly needed to shape these expectations in concrete terms. Responsible algorithms will not only generate profit, but protect the rights of individuals worldwide while doing so.

 

[1]               OECD Guidelines for Multinational Enterprises, Chapter VI.3

[2]               OECD Guidelines for Multinational Enterprises, Chapter VIII.2

[3]               OECD Guidelines for Multinational Enterprises, Chapter VIII.6

Landmark human rights cases show value of OECD grievance mechanism for responsible business

Landmark human rights cases show value of OECD grievance mechanism for responsible business

By Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct (@nieuwenkamp_csr)

This article was originally published on OECD Insights on 11 November 2016.

Compensation for indigenous people for adverse impacts of business activities, companies agreeing to carry out human rights due diligence concerning products in their value chain, authoritative statements that set the standard for the garment industry worldwide in the aftermath of Rana plaza – these are just some examples of achievements by the National Contact Points (NCPs) for responsible business in recent months.

In the run up to the 2016 UN Forum on Business and Human Rights it is good to highlight the importance of the NCP mechanism for business and human rights. Five years ago the OECD Guidelines for Multinational Enterprises were revised and the UN Guiding Principles were embedded in its human rights chapter. This way the OECD’s globally active grievance mechanism for responsible business became a de facto grievance mechanism for the UN Guiding Principles on Business and Human Rights.

The complaints mechanism is globally active as it covers global value chains with a link to companies from the 46 adherent territories. Over 360 cases have been brought to the NCP mechanism since 2000 addressing impacts from business operations in over 100 countries and territories.

What has been the experience thus far?

Since the 2011 addition of a human rights chapter 54% of all complaints brought to the NCP mechanism concern human rights and business.

From 2011 to 2015 about half of all complaints brought which were accepted for mediation, resulted in a mediated agreement between the parties.

Concrete results were for example ending forced and child labour in supply chains, improved health and safety for agricultural workers and better human rights due diligence for mega sport events. I would like to highlight a couple of landmark business and human rights cases that are worth looking at.

Value chain responsibility concerning the death penalty

Most attention has been paid to supply chain responsibility of business. Yet it is largely unknown that with the 2011 revision, the scope of the OECD Guidelines was extended to cover the entire value chain, meaning that they apply to the supply and distribution chains, or in simple words: it matters from whom you buy and to whom you sell taking into account the potential end use. The far reach of the Guidelines has been illustrated in a number of instances.

Last year a case was brought to the Dutch NCP involving Mylan, a pharmaceutical company, for possible human rights abuses associated with the production and sales of rocuronium bromide to prisons in the United States for use in lethal injections. The Dutch NCP concluded that the Guidelines are applicable to the value chain and in particular to the distribution chain. The case is also noteworthy as it demonstrated the force of finance used by the shareholders to exert their influence to hold the company accountable for responsible business conduct. In parallel to the specific instance proceeding, several investors entered into dialogue with Mylan to persuade the company to ensure that its products are not used to carry out lethal injection executions. One pension fund even decided to sell its shares in the company, whereas others continued the dialogue. The parties in the case concluded a mediated agreement and Mylan has taken active steps to prevent rocuronium bromide from being used in US prisons for executions.

Value chain responsibility concerning sales of teargas

In another case the French NCP also considered the distribution chain. The complaint concerned the sale of tear gas by Alsetex to the government of Bahrain allegedly used by security forces in the pro-democracy protests in 2011 and thereafter to violate human rights. The consideration of the case demonstrated that the Guidelines go beyond enterprise compliance with the export control regulations for strategic goods and require companies to take risk-based due diligence measures. With due consideration to the State duty to protect human rights, the French NCP concluded that Alsetex complied with the Guidelines, however recommending the company to formalise in-house due diligence procedures particularly in order to increase the traceability of its exports. The parties agreed with the conclusions of the NCP.

Indigenous people’s rights

Indigenous people’s rights have also been addressed by the NCP mechanism in the context of a complaint by the Saami village alleging that Statkraft AS, a Norwegian multinational enterprise, had breached human rights chapter of the Guidelines by planning to build a wind power plant on reindeer herding ground in Sweden. The case reveals the possible tensions between environmental concerns for sustainable energy production and the indigenous peoples’ rights for their community’s economic and cultural survival. The Swedish and Norwegian NCPs applied the principle that enterprises are expected to carry out consultations with a view to obtaining from the parties Free, Prior and Informed Consent (FPIC consultations) based on the UN Declaration on the Rights of Indigenous Peoples. While the NCPs found that the company had not failed to comply with the OECD Guidelines, some areas for improvement were identified. Following the conclusion of the NCP case, the parties have subsequently themselves reached an agreement last August on compensation for the impact and negative effects of the windmills.

Supply chain responsibility regarding the Rana Plaza tragedy

In practice a lot of human rights cases under the NCP system concern labour rights issues. The collapse of the Rana plaza factory has symbolised poor working conditions in global textile supply chains. The responsibility of global brands has also been brought to the attention of the NCPs. The Danish NCP for example recently concluded its consideration of a case involving PWT Group, a Danish retailer, for failing to carry out due diligence in relation to its textile manufacturer which was located in the Rana Plaza building. The case confirms the importance of the Bangladesh Accord on Fire and Building Safety which includes inspection of building structures as part of occupational safety and health. Under the OECD Guidelines, companies cannot hide behind the industry practice that risk-based analyses did not include the inspection of building safety. Following the Rana Plaza tragedy, the OECD has convened governments, business, civil society and trade unions to develop a Due Diligence Guidance on Responsible Garment and Footwear Supply Chains, which provides specific recommendations to support a common understanding of due diligence and responsible supply chain management in the sector. This Guidance is expected to be finalised soon. Both the Guidance and the conclusions of the Danish NCP in this case are significant for the future of human rights due diligence in the textile sector globally.

Delivering important results

This year marks the 40 years anniversary of the OECD Guidelines. Five years ago the Guidelines were dramatically revised, increasing the scope to global value chains and embedding the UN Guiding Principles into the human rights chapter. Five years down the road the OECD’s globally active grievance mechanism for responsible business has proven its potential added value for reinforcing the UN Guiding Principles on business and human rights, delivering important results.

Useful links

OECD Guidelines for Multinational Enterprises

Implementing the OECD Guidelines for Multinational Enterprises: The National Contact Points from 2000 to 2015

2016 UN Forum on Business and Human Rights

Scaling Up Living Wages in Global Supply Chains

 

Een theeplukster aan het werk / Tea picker at work

By Dr Marjoleine Hennis, Counsellor Social Affairs and Employment, Permanent Representation of the Kingdom of the Netherlands to the OECD and Prof Dr.  Roel Nieuwenkamp, Chair of the OECD Working Party on Responsible Business Conduct

 1. Introduction

Meet Ei Yin Mon, a factory worker in Myanmar. She came to Yangon after cyclone Nargis hit the country in 2008. The base wage she earns is extremely low, so she has to work many hours of overtime to compensate. “We are always being told to work faster. They think that we are like animals. I know I have no rights to make a complaint, so I have to bear it”[1].

Many workers globally face similar challenges and are trapped in poverty. They often have many mouths to feed, with too little revenue coming from regular working hours and must either compensate by working overtime or fall into debt. Sometimes workers don’t get paid at all and do not have access to grievance mechanisms to address this. In many sectors, plantations, factories and countries, this situation is the norm rather than the exception. Still, consumers are buying goods that are made using under-paid labor.

Imagine now that you are a CEO of a global company with suppliers in various countries. You would like to see to it that your workers, and those in the supply chains, earn a living wage. But how can you convince your suppliers to do so and according to which criteria? And how do you involve local governments or bring stakeholders to the table?

In recent years the responsibilities under internationally recognized standards have been clarified for supply chain responsibility vis-à-vis wages. Since 2011, the UN Guiding Principles for Human Rights and Business (UNGPs) and the OECD Guidelines for Multinational Enterprises (OECD Guidelines) both address living wages, partly by focusing on the angle of human rights, and partly by focusing on specific labor rights.

Let’s not be naïve, this is a very difficult issue to tackle for companies and their supply chains. However, in order to reach the Sustainable Development Goals and for companies to fulfill their corporate responsibility, enterprises should dramatically scale up and speed up their good practices towards living wages in global supply chains.

 2. Treatment of living wages within international standards on responsible business conduct

Over the last ten years, living wage as part of corporate responsibility, has received increasing attention worldwide. Although it has gathered less consideration in the press than issues of child labor or forced labor, companies, NGO’s, and governments have increasingly put it on the (international) agenda. The globalization of production, consumption and information, that has drawn attention to all parts of the international production chain, has provided even more insight into the existing variations between wages within one supply chain. Some of those wages do not make for a decent living for workers and their families.

Many consider the concept of living wage to be more useful than the minimum wage. The living wage concept takes into account the local costs of living to cover basic needs for workers in order to take care of themselves, and to find their way out of poverty without being forced into structural overwork. Thus, on the one hand, it provides an instrument for achieving fair compensation throughout all segments of global supply chains. On the other hand, the concept leaves room for persistence of absolute differences in income within the same sector globally, as living wage is context dependent.

Living wage has come to play a role in the OECD Guidelines since its revision in 2011. The OECD Guidelines are the most comprehensive set of guidelines for Responsible Business Conduct (RBC) covering all areas of corporate responsibility, ranging from labor and human rights to environment and corruption. Currently, 46 countries adhere to the OECD Guidelines and more non-OECD members are in the process of adherence. The OECD Guidelines are a binding multilateral commitment for governments. Although not legally binding for MNE’s, they represent a “firm government expectation of company behavior”. The OECD Guidelines have likewise been endorsed by business and civil society. Indeed, business has actively been engaged in the negotiations leading to their latest revision in 2011. This revision has been important for living wages, as it has led to considerable clarification in responsibilities of countries adhering to the OECD Guidelines, and their MNE’s with regard to this issue.

For the moment, attention with respect living wages issues seems to concentrate on the textile and garment sector in addition to  a few select agricultural commodity sectors (tea production, for example). These sectors are probably most at risk when it comes to non-payment of living wages, however the under the Guidelines payment of living wages must be respected throughout all sectors. Additionally, under the Guidelines not only do companies have a responsibility to pay living wages within their own operations, they also should  promote the payment of living wages throughout the whole of their supply chain. The 2011 revision of the OECD Guidelines incorporated the concept of due diligence which is the process by which companies can demonstrate they are acting responsibly in this respect.  Finally, the Guidelines are equipped with a grievance mechanism, the National Contact Points (NCPs) which was further strengthened during the 2011 update. The combination of those new elements makes that the OECD Guidelines could be a unique and rather complete framework for promoting living wages.

As of yet, the OECD Guidelines have been under-utilized by stakeholders as a tool for promoting living wage. This may be due to a lack of information about the scope of the OECD Guidelines. This article seeks to deal with that by focusing on the responsibilities of business throughout the supply chain under the OECD Guidelines, with respect to living wages. It encourages business to do its due diligence in general, and on the wage situation in particular, throughout its supply chain. Dealing with living wages is not only an ethical or moral issue, but it is also good for business itself by creating a broader level playing field and avoiding the involvement in grievances brought under the OECD NCPs.

 3. The basis for living wages in the OECD Guidelines

The OECD Guidelines have not developed their concept of responsible business conduct on living wages in an isolated manner. Their principles are firmly based upon the UN Declaration of Human Rights and ILO Conventions.

Firstly, according to the Universal Declaration of Human Rights, a living wage is a human right. The Declaration points out that everyone who works has the right to just and favorable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection[2]. Moreover, it falls under the UNGPs which were endorsed by the UN Human Rights Council in 2011. The UNGPs  build on three pillars: The duty of states to protect against human rights abuses by third parties, including business; the inclusion of the respect of human rights as part of corporate responsibility for all businesses; and greater access by victims to effective remedy, both judicial and non-judicial. The first two pillars introduce obligations concerning living wages for states and for businesses through reference to general human rights. More explicit references are also included, for example in article 2.12[3], where it refers to the fundamental labor standards of the ILO.

The OECD Guidelines state that enterprises have the responsibility to respect human rights[4].  Among other things, this means that enterprises should avoid causing or contributing to the non-respect of living wages, and seek ways to prevent or mitigate adverse impacts on living wage as far as they are directly linked to their business operations, products or services by a business relationship, even if they do not contribute to those impacts[5]. In other words, enterprises are expected to make an effort vis-à-vis their suppliers to have living wages respected in all parts of their supply chain.

Secondly, the ILO recognizes living wage as a basic human right as laid out in the Universal Declaration of Human Rights, through the ILO Convention concerning the Protection of Wages of 1949 (95), and the ILO Convention on Minimum Wage Fixing of 1970 (131). In addition, living wage is mentioned in the ILO Constitution and the 2008 ILO Declaration on Social Justice for a Fair Globalization. This declaration has been the ILO’s response to globalization via the adoption of the Decent Work Agenda based on four, interrelated goals of employment creation, social protection, rights at work, and social dialogue.

More direct guidance for business is offered by the 2006 ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (ILO Tripartite Declaration). In this declaration the ILO invites governments of State Members of the ILO, the employers’ and workers’ organizations concerned and the multinational enterprises operating in their territories to observe, among others, the principle that wages, benefits and conditions of work offered by multinational enterprises should be no less favorable to the workers than those offered by comparable employers in the country concerned[6]. Moreover, the Declaration states that when multinational enterprises operate in developing countries, where comparable employers may not exist, they should provide the best possible wages, benefits and conditions of work, within the framework of government policies. These should be related to the economic position of the enterprise, but should be at least adequate to satisfy basic needs of the workers and their families. Where they provide workers with basic amenities such as housing, medical care or food, these amenities should be of a good standard[7].

These two pillars of international engagements have formed the basis for the recommendations for MNE’s concerning living wage as laid down in the OECD Guidelines since its revision in 2011. The revision has resulted, among other things, in the inclusion of a recommendation on living wages in Chapter V on Employment and Industrial Relations. The OECD Guidelines are clearly inspired by the ILO wording of living wage as laid down in the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy. The OECD Guidelines state that: “when multinational enterprises operate in developing countries, where comparable employers may not exist, (they should) provide the best possible wages, benefits and conditions of work, within the framework of government policies. These should be related to the economic position of the enterprise, but should be at least adequate to satisfy the basic needs of the workers and their families.”[8]

Since their revision in 2011 the OECD Guidelines do not only concern investments anymore, but also cover global supply chains. MNE’s are recommended to adopt a comprehensive approach to risk-based due diligence to identify, prevent or mitigate actual and potential adverse impacts, where they have not contributed to that impact, when the impact is nevertheless directly linked to its operations, products or services by a business relationship[9]. To put it differently, responsible supply chain management by MNE’s means, that even if the MNE’s themselves have not contributed to a negative impact, they are still expected to try to use their leverage on their suppliers to make them change their behavior. This includes taking reasonable steps by putting pressure on suppliers to make sure they pay a living wage. In high risk situations, the Guidelines recommend that MNE’s do more robust due diligence. For living wages this will probably be the case in many parts of the world and in many sectors such as garment and footwear.

This combination of references in the OECD Guidelines – directly, or indirectly– to living wages has thus resulted in a situation today in which multinational enterprises (parent companies and/or local entities) face a rather extensive package of strong expectations and recommendations by the 46 governments concerning their efforts in paying a living wage to their workers and using their leverage to let the enterprises in their supply chains do the same[10]. The fact that the references now apply both to the company and its suppliers, for example in developing countries, increases the scope of their responsibilities. However, it is important to stress that the supply chain responsibility in the OECD Guidelines does not shift responsibility away from the supplier that causes the adverse impact, to the buying enterprise[11]. In addition, the OECD Guidelines recognize that there are practical limitations on the ability of enterprises to effect change in the behavior of their suppliers.[12]

4. How to integrate the concept of living wage into responsible business conduct?

In order to do no harm, MNE’s should carry out due diligence, including throughout their supply chain. The process of due diligence consists of three parts.

 Firstly, there is the identification of the risks of negative impacts in the supply chain, the supplier risks and the internal risks. Enterprises should identify countries in their supply chain where wages have been identified as not meeting the basic needs of workers and their families and should, where possible, prioritize their engagements in countries with the greatest discrepancy between the actual wage and the wages necessary to satisfy basic needs[13].

In countries where the established standards are not met, the enterprise should also do a context assessment, for example by checking the proportion of wage workers under a collective agreement, for themselves and for their suppliers. The quality of collective bargaining and the lack of free association are critical factors contributing to the (non-) respect of living wages. But, even if good collective bargaining would drive up the wages, this may not be enough to ensure sufficient levels for the workers and their families, due, for example to (partially unpaid) overwork-practices or a high labor supply on the local labor market.

Moreover, even in a situation where the established hourly remuneration qualifies as living wage, its impact will be limited if other conditions are not met, such as the regular and timely payment of wages.

 Additionally, companies should also review their purchasing practices. Sometimes the pricing, timing and changes in contracts contribute to suppliers breaching labor standards. Late payment of the factories could for example lead to late payment of wages to workers. All these elements should be taken into consideration. Living wage issues generally cannot be addressed in an isolated manner.

Secondly, potential impacts are to be addressed through prevention or mitigation, while actual impacts are to be addressed through remediation. This is done, for example, by encouraging collective bargaining agreements, by respecting national minimum wage mechanisms, or where both do not exist, through the engagement in capacity building.

Thirdly, the actions in prevention, mitigation and remediation of a company should be verified, reported, and communicated to stakeholders, workers and consumers.

So far, the OECD Working Party on Responsible Business Conduct has prepared supply chain due diligence guidance for MNEs in several sectors. These include the Due Diligence Guidance for Responsible Supply Chains in the Minerals Sector, and more recently the  OECD-FAO Guidance for Responsible Agricultural Supply Chains[14].  Additionally, guidance on responsible supply chains in garment and footwear sector will be published this year.

It is important to stress that due diligence on the issue of wages in the supply chain is not a zero tolerance approach. Due diligence should be risk-based, meaning that the level of due diligence applied corresponds with the level of risk identified. It may not always be possible for an enterprise to address all adverse impacts in its supply chain. The severity and probability of the adverse impact are the most important factors in determining the scale and complexity of the processes the enterprise needs to have in place in order to know and show that it is acting responsibly. The nature and appropriate extent of due diligence on wages in the supply chains will depend, furthermore, on individual circumstances and be affected by factors such as the size of the enterprise, the location of its activities, the situation in a particular country, the number of business relationships, the sector, and the nature of the products or services involved. While an enterprise’s degree of leverage does not alter its responsibility to identify and respond to adverse impacts, leverage is a key consideration of how businesses should prevent and mitigate adverse impacts.

Due diligence should also be dynamic, meaning that it can be tailored over time to the operating context or circumstances and should be applied with flexibility. It should include a process of learning, through constructive engagement with business partners, workers and stakeholders. When risks on adverse impact are brought to the enterprise’s attention, due diligence systems should be adjusted accordingly, in order to enhance the identification of similar risks in the future.

Although enterprises retain individual responsibility for their due diligence, supply chain due diligence can be more effective when conducted in collaboration with others, including with other enterprises at a sector-wide level, with workers, with home and host governments, and with civil society. For example, due diligence on wages ideally would be conducted in consultation and collaboration with trade unions and representatives of workers’ organisations.

Enterprises should work towards progressive improvements. In practice, this means that an enterprise may not be able to implement all of the recommendations on wages in supply chains at once, but should systematically work towards their full application. Enterprises should be transparent on their existing due diligence practice and their plans for progressive improvement.

5. It pays to pay a living wage

If the business case for taking these actions is made clear for enterprises, with respect to risk management, reputation and productivity gains, they will be more likely to act responsibly. Apart from ethical considerations, there are many reasons why it makes business sense to strive for payment of living wage throughout the value chain. Paying relatively low wages may lead to costs for businesses such as lower product quality, lower worker productivity and few investments in innovation due to high labor-turnover.[15] Below living wages also increase the risk of labor unrest which can lead to the disruptions of operations and reputational damage to companies, particularly in this age of mass communication. Lastly the rise in ethical consumerism means that companies can access an important market share and stand to profit by behaving responsibly.

Additional incentives for business to pay a living wage can be found in (financial) incentives by national governments adhering to the OECD Guidelines, which are set up to encourage them to comply with the Guidelines; marketing opportunities for business and attraction of consumers willing to pay for goods resulting from responsible business practice; and, lastly, reducing harm through business operations on a global scale.

 6. Good practices and remaining challenges

A reality check is needed. Unfortunately, getting to a living wage is not as simple as $1 dollar more on the price, equals $1 dollar more in salary for the workers. So when you pay that dollar extra for your T-shirt, you should not expect it to end (entirely) in the pocket of the worker. As the Secretary General of the International Organization of Employers, Linda Kromjong, states: “Buyers are not in a position to dictate wages unilaterally, especially when rates relate to supplier companies in a second or a third tier position. Supply chains are not direct linear arrangements; as we have noted above, they are complex webs of interaction. It is naive to imagine that buyers can pour money in at one end and expect it to be directly distributed to supply chain workers through higher wages at the other. Experience tells us that wage setting is most effective when it takes place at the national level with the full involvement of the representatives of the social partners. Nevertheless, many companies are proactively engaged in promoting decent wages at their suppliers. Contrary to reports that international companies lobby for low minimum wages, joint efforts in Cambodia by international brands in the garment and the textile industry and IndustriALL Global Union have shown the opposite to be the case.” [16]

Indeed, many businesses are already undertaking action in order to ensure a living wage for their workers and those of their suppliers. Many of these initiatives bring together several stakeholders and seem to be motivated by the need to act together and create a level playing field, not only among some enterprises and their suppliers, but in the whole sector. A good example is the Action Plan on Living Wages, which was the result of a multi-stakeholder consultation process that culminated in the European Conference on Living Wages (Berlin, 2013).

In the textile industry, for example, there is ACT (Action, Collaboration, Transformation) a global framework on living wage that brings together all relevant stakeholders. According to its website ACT is based on the awareness that the payment of a living wage should not be limited to certain brands but should apply to all workers. [17] ACT aims to accomplish this by establishing industry-wide collective agreements on wages in key garment and textile sourcing countries, supported by manufacturing standards and responsible purchasing practices.  15 brands, including  H&M, Esprit and C&A, participate in this initiative. These companies deserve praise for engaging in this effort.

A good example in the food sector is the Malawi Tea 2020 Revitalization Program. Under this program a Memorandum of Understanding (MOU) was developed which commits to payment of  living wages on tea plantations and living income on smallholder farms in Malawi by 2020. Among the participating partners are tea producing companies, tea buying companies and retail, standards and certification organizations, and tea trading companies. This MOU emanates from an earlier MOU of ISEAL signed by organizations (Fairtrade International, Rainforest Alliance, UTZ Certified, Forestry Stewardship Council, Goodweave and Social Accountability International), which they have committed to adopt a common definition of living wage and apply a common methodology to estimating living wage levels, as developed by former ILO economist Richard Anker.[18] In order to convince actors such as retailers and brands to participate, the program has calculated the needed increase in price in the UK for a typical tea box of 80 teabags in order to generate sufficient funds to pay a living wage for workers in the Malawi-tea sector: merely one cent.[19]

 7. Scaling up & speeding up good practice

These initiatives are all to be praised for having paved the way forward in a new and challenging territory. The considerable participation by business in these initiatives demonstrates that business is willing to act but that it requires common standards and guidance. Furthermore in order to be really effective, these initiatives would need to be scaled up dramatically to other sectors, and to other countries. The question is, how?Firstly, awareness and understanding of the responsibilities is important. Companies have to understand the individual responsibilities they have under internationally recognized standards of the ILO, the OECD and the UN concerning wages in their supply chain. It helps if they see the business case for this in terms of risk management, reputation and productivity gains. Once they do, companies should use their leverage and take steps to promote living wages in their supply chains. These new responsibilities should also be reflected in sectoral codes of conduct, of which many currently ignore the tricky living wage issue. Secondly, methodologies should be more fine-tuned and consistent. Currently a common methodology for calculating living wages does not exist. Ideally MNEs could rely upon one broadly accepted methodology which takes into account local conditions to determine what living wages should be. Moreover, wages should also be regularly adjusted and be determined based on negotiations with social partners.[20] The lack of one or more of these factors is likely to result in persistence of differences in wages throughout supply chains and within countries, while frustrating the good intentions of all stakeholders. Promising initiatives that focus on the development of a common approach to the measurement of living wages, such as that of ISEAL and Wage- Indicator, should receive support.Thirdly and most importantly, a sector-wide comprehensive approach is needed. Focusing on calculating the numbers and levels of wages alone will not do the trick. Tackling the root causes of low wages is necessary. The gaps between living wage and current wages are so large in certain jurisdictions that individual companies will not be able to bridge the gap even when they are the only company sourcing from a factory. In addition, there will be pressure from colleague-suppliers and employers’ organizations to stay “in line”. And, even if a jump to provision of living wage levels could happen overnight, in many regions this might damage the competitiveness of factories or suppliers, potentially squeezing them out of the market and leaving many workers jobless. Therefore, the comprehensive approach seems the only viable way towards sustainable living wages.. A reasonable step would be to start with, or engage in, sector-wide collaboration between companies, suppliers, employers’ organizations, trade unions and governments. This includes processes to set an adequate national minimum wage. The Tea MOU and ACT are good examples of this sector-wide approach. Moreover, companies should support collective bargaining mechanisms and effective worker institutions, in particular trade unions. They should enable factories to incorporate living wages as part of their human resource policy to motivate, attract and keep people.

Those are not simple tasks for companies, but are not impossible either. The OECD Guidelines facilitate companies in these efforts  by offering guidance for the due diligence process and convening actors to promote a level playing field.  In addition, companies can turn to (local) governments who, according to the OECD Guidelines and UNGPs have the duty to protect human rights, including the right to a living wage. Collaboration with governments can create the conditions for promoting  living wages for a larger group of workers.

 8. Conclusion

Ensuring the payment of living wages throughout global supply chains will be a significant challenge. However, doing so will be necessary to achieving the Sustainable Development Goals and responding to expectations of international standards of human rights and responsible business conduct. Even if individual companies play a considerable role in this, they cannot solve this issue on their own. For one thing, (local) governments, who have the duty to protect and fulfill human rights, and ensure access to effective remedy[21], should be there to support them and contribute to creating the right conditions. Ideally, however, the way forward is to engage in an even broader collaboration which is sector-wide and includes not only suppliers and governments, but also trade unions, NGOs and employers’ organizations. Some promising initiatives have been successful, such as the ACT process and the Malawi Tea MOU. The companies involved in these initiatives deserve praise for their effort. But what about the other 80.000 multinationals?[22] These efforts need to be scaled up and sped up dramatically. Other companies should join. Similar initiatives should be introduced in other sectors and other regions. Any company that reflects on its possible contribution to the SDG’s should look at this issue with high priority!

[1] A worker interviewed for Oxfam study ‘In work but trapped in poverty’. http://policy-practice.oxfam.org.uk/publications/in-work-but-trapped-in-poverty-a-summary-of-five-studies-conducted-by-oxfam-wit-578815, the worker’s name was changed to protect her anonymity.

[2] Universal Declaration of Human Rights, Article 23.3

[3] OECD Guidelines, II, art A2

[4] OECD Guidelines, Chapter IV

[5] OECD Guidelines, IV-2, 3

[6]  ILO Tripartite Declaration, art. 33

[7]  ILO Tripartite Declaration, art. 34

[8] OECD Guidelines for Multinational Enterprises, 2011, Chapter V, 4B

[9] OECD Guidelines, General Policies, art A10, 11 and 12

[10] Even if the strong expectations mentioned above do not apply, the Guidelines still demand that enterprises encourage business partners, including suppliers and sub-contractors, to apply principles of responsible business conduct compatible with the Guidelines (A13), and to inform workers and consumers about the company policies including their adherence to the Guidelines on initiatives they have taken to integrate social concerns according to the rules of disclosure (chapter III and chapter V, 2C), and resulting engagement in achieving a living wage throughout enterprise groups.

[11] OECD Guidelines, Chapter General Policies, paragraph 12

[12] OECD Guidelines Chapter General Policies, Commentary paragraph 21

[13]  OECD Due diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector, pp 93) DRAFT

[14] December 2015

[15] Cascio W.F, The high cost of low wages, Harvard Business Review, December 2006; and  Zeynep T., The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits– Amazon Publishing, 2014.

[16]http://www.ioe-emp.org/fileadmin/ioe_documents/publications/ILO_ILC/2016_ILC/EN/_2016-02-01__C-345_2016_ILC_-_Global_Supply_Chain_blog_series_-_No._1__final_.pdf

[17] http://www.hiil.org/data/sitemanagement/media/ACT%20Factsheet.pdf

[18]See, for example Anker, R., Estimating a living wage: a methodological review, ILO 2011.

[19] Anker, R., Anker M., Living wage for rural Malawi with Focus on Tea growing area of Southern Malawi, Report prepared for Fairtrade International, Sustainable Agriculture Network, Rainforest Alliance and UTZ Certified, January 2014.

[20] Vaughan-Whitehead D., Speech at NCP–NL conference on living wages, The Hague, October 2015.

[21] Guiding Principles on Business and Human Rights (2011)

[22] Estimate from Sustainable Stock Exchanges Initiative, 2014 report on progress

Responsible Business Conduct in Cyberspace

By Prof. Roel Nieuwenkamp, Originally published by the Institute for Human Rights and Business, April 30, 2015

At the Global Conference on CyberSpace held in the Hague in April, I spoke about human rights in the context of development and sales of surveillance technology and software – a fascinating topic that deserves increased attention.

What kind of business are we talking about? And what human rights are at stake?

Surveillance and reconnaissance technologies invoke images of Hollywood spy movies.  This is a world of deep packet inspection (DPI), spyware, keyloggers, Trojan horses and password sniffing– tools invented to observe, capture and explore the behaviour and identities of people and organisations on computer networks. Sellers of such technologies often justify their use by saying they are intended to support law enforcement or protect the public welfare (e.g. through protecting against terrorist activity), but they often can also be used to facilitate human rights violations by the purchasers.

For example, recently a criminal complaint was brought against a French company, Amesys, which provided the former Libyan government with surveillance technology and support in using this technology. It is alleged this technology was used by the government to monitor opposition activists who were subsequently arrested, detained and tortured. The case is currently pending an outcome.

While all surveillance technologies impact the right to privacy, this example demonstrates that human rights are  at stake, and the rights include freedom of expression, freedom of association and freedom from torture.

Selling spyware is a tricky business

It can be difficult to reach a definitive assessment of whether a surveillance product is good or bad in terms of its human rights impact because, as noted, often products can be developed to protect human rights and then applied to do just the opposite.  Furthermore, the rapid evolution of technology makes it difficult to regulate these types of products and services. For example, sophisticated export control regimes exist for goods and service that are ‘dual use’, e.g. products that can be used both for military and civilian purposes. However because of the fast pace of technological development, such control regimes often end up ‘regulating the past’, as advancing technology makes current regulation irrelevant.

Marietje Schaake, member of the European Parliament, correctly stated during our panel at the conferencethat there is a legal vacuum in this area. Despite the challenges, governments have a duty to protect human rights and therefore should establish and enforce regulation to ensure that they are conforming to this duty. The European Commission and some EU member states are exploring what could be done in this regard by conducting a review of EU export control policy and seeking areas of clarification.

In addition to regulation, international instruments on business and human rights have a role to play. For example corporations have the responsibility to respect human rights under both the UN Guiding Principles for Human Rights and Business (UNGPs) and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (‘the OECD Guidelines’). These instruments do not provide a silver bullet solution to resolve the issue – soft law is non-binding and thus has its limitations.

At the same time non-binding instruments are not without impact or consequence.  The UNGPs restate state obligation to protect human rights, from which it cannot abdicate itself, and companies have the obligation to comply with laws, which is also not an optional alternative for companies. Furthermore, although the OECD Guidelines are non-binding for companies, they have a built-in grievance mechanism providing them with some bite. Governments of 46 the states adhering to the Guidelines made a binding commitment to implement the National Contact Point (NCP) mechanism, the grievance platform of the Guidelines. NCPs are mandated to provide good offices to consider cases of alleged non-observance of the OECD Guidelines.

NCPs in Action: Human rights issues in the ICT sector

A case recently brought to the NCP mechanism is a good illustration of the application of the OECD Guidelines to these issues. The case was brought by a consortium of NGOs led by Privacy International (PI), consisting of the European Centre for Constitutional and Human rights (ECCHR), Reporters Without Borders, Bahrain Centre for Human Rights, and Bahrain Watch. In February 2013 this group submitted a complaint to the UK NCP alleging that Gamma International had supplied a spyware product – Finfisher – to agencies of the Bahrain government which had used it to target pro-democracy activists.

When cases are brought to the NCP mechanism the first course of action is an offer of mediation to try to solve the problem. In instances where mediation fails NCPs do their own examination and make recommendations to the company. Sometimes they may reach a determination of whether the business’ behaviour was in line with the OECD Guidelines.  In the Gamma case the mediation effort failed. The NCP then went on to conclude that Gamma had not acted consistently with provisions of the OECD Guidelines requiring enterprises to do appropriate due diligence, to have a policy commitment to respect human rights and to remediate human rights impacts, as outlined in paragraph 68 and 69. Furthermore the company’s approach had not met the OECD Guidelines standards to respect human rights and the engagement of the company with the NCP process was unsatisfactory, particularly in view of the serious nature of the issues.

The NCP recommended that Gamma International and the Gamma Group:

  1. Take note of international evidence and UK Government advice in shaping its due diligence processes;
  2. Participate in industry best practice schemes and discussions;
  3. Reconsider its communications strategy to offer the most transparent and consistent engagement appropriate to its sector;
  4. Where it is identified that its products may have been misused, cooperate with official remedy processes used by victims of the misuse.

Consequences with bite

Even if non-binding, the NCP’s conclusion and recommendations have important impacts. First of all such a determination may cause significant reputational damage to the company. Secondly, some governments base some of their decisions in part on NCP statements such as this one, e.g. in the context of public procurement decisions or in providing support to international operations.  For example, export credit agencies of OECD member countries must take into account the final statements of NCPs when they make decisions on export credit guarantees. Additionally, some countries have taken NCP decisions and processes into account with regard to their commercial diplomacy.

Beyond government related commercial consequences, increasingly financial institutions are conducting human rights due diligence to assess the risks the investment or loan could face. This is to avoid being considered directly linked to such impacts and well as to avoid commercial risks associated with such operations. Likewise institutional investors have increasingly started to apply pressure in situations where human rights issues are identified and in some cases have been known to pull their investment where adverse impacts are not adequately addressed. For example in 2010, investors withdrew from mining company Vedanta following an upheld NCP complaint. All this can increase the cost of capital.

Resources for human rights due diligence in the ICT sector

In the case of Gamma one of the NCP’s recommendations was that the company engage in human rights due diligence. The Chair’s Statement of the Global Conference on Cyber Space also highlighted the importance of due diligence.  But what does human rights due diligence actually mean for the ICT sector, particularly for companies that sell surveillance and reconnaissance technology?

Due diligence is a part of a broader range of actions corporations should undertake to respect human rights. For example, under this expectation companies should have a policy commitment on respecting human rights, assessing human rights risks, providing remediation when adverse impacts are caused or contributed to and promoting transparency throughout their supply chains.  The essence of due diligence is the process of identifying, preventing and mitigating actual and potential adverse impacts human rights impacts, and accounting for how these impacts are addressed. If there is a risk of severe human rights impacts a heightened form of due diligence is recommended.  For example, significant caution should be taken with regard to the sale and distribution of surveillance technology when the buyer is a government with a poor track record of human rights.

The European Commission has developed a guide on implementing the UNGPs in the ICT sector which provides useful guidance to companies on this issue.  The guide provides that “[i]n all cases, companies should not sell, or facilitate the sale or integration of, product, services or technologies to governments or other end users if they know, or have reason to know, that they are likely to be used in abusing human rights.’’ In addition it articulates the steps that can be taken to identify and address misuse of their product. This includes pre-sale due diligence, including a ‘know your customer approach’, to determine the end user of the product and including respect for human rights in the contracts. Finally, as part of ongoing or post-sales due diligence, leverage could be used during the delivery of the products or services. The regular updating of software could for example provide an opportunity to use influence in order to respect human rights.

TechUK, an industry association of ICT companies in the UK, in partnership with the UK government has alsopublished a guide on assessing cyber security export risks. This publication is a valuable resource for industry on how to design and implement appropriate due diligence processes.

Additionally the Electronic Frontier Foundation has developed a guide on How Corporations Can Avoid Assisting Repressive Regimes and the Global Network Initiative has developed principles on Freedom of Expression and Privacy. Both documents are valuable guides on implementing the ’know your customer’ principle in the context of ICT business operations.

To conclude, governments have a duty to protect against human rights violations in relation to surveillance and reconnaissance technology, and efforts must be made to close the current regulatory gap in this regard. In addition companies have to fulfil their responsibility to respect human rights. Businesses engaged in surveillance, blocking, or network disruption, need to go beyond consulting sanctions lists and the export control lists to developing and implementing human rights due diligence processes, as recommended by the OECD Guidelines.  Furthermore, enhanced human rights due diligence is necessary when selling products to governments with a poor track record in human rights. Responsible business conduct in the ICT sector contributes to protecting the bottom line as well as human rights worldwide.