Corporate Social Responsibility (IVOR nr. 77) 2010/6.10:6.10 The quality of the regulation

Corporate Social Responsibility (IVOR nr. 77) 2010/6.10

6.10 The quality of the regulation

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The quality element of regulation basically relates to the question whether regulation is practicable, workable and enforceable. The quality principle is found to be relevant for the process of drafting a regulation, for the content of the regulation as well as for its implementation and enforcement. In particular, it is assumed that the quality of a norm is better guaranteed when the regulation is (jointly) drafted by legal experts and professional experts from the relevant sector. Such experts are more familiar with complex and technical issues.1 Furthermore, private regulation is said to be more flexible and rapidly adjustable to societal changes than public regulation. As such It would be better equipped to track more closely the actual and current needs of a particular sector in comparison to public regulation.2 Public legislation is, by comparison, drafted with a long-term perspective and with a broader audience in mind.

A certain contradiction can be noted between this need for flexibility and the criteria of (legal) certainty and predictability, which are also important elements for ensuring 'quality' of a regulation. When private norms are changed too rapidly or frequently this will have a negative impact on their predictability. Striking the right balance between these criteria can therefore become challenging.

In most countries, public regulation must follow strict legislative procedures to ensure legal quality control.3 This also guarantees the consistency of the new norms with the existing system of norms. The absence of a complete legislative process when introducing private regulation raises the question whether there are sufficient mechanisms in place to ensure adequate quality control and maintenance. Moreover, since many private regulatory regimes address multinational companies operating in various countries, it will be difficult to assure consistency with existing national norms. In this respect, it should nevertheless be noted that many of the values addressed by private regulations covering CSR derive from international conventions and declarations endorsed by many countries. These private regulatory regimes are hence built on a normative framework that has already been widely accepted. This remark certainly applies to the UN Global Compact Principles, the OECD MNE Guidelines and the GRI Guidelines. An important question here is whether technical and normative conflicts exist between a certain private regulation and public norms. For instance, human rights norms that have been publicly legislated and are thus applicable to companies - related to non-discrimination or non-violence - do not apply on an extraterritorial basis. However, private regulation, which promotes the same norms to control the conduct of companies, applies worldwide (such as the Global Compact and the OECD MNE Guidelines). In the case of regulation concerning anti-corruption and bribery, a series of norms in different legal systems can be simultaneously applicable: national laws; extraterritorial American law (FCPA),4 ICC Rules of Conduct and Recommendations to Combat Extortion and Bribery (2005), ICC Guidelines on Whistleblowing (2008), the Earth Charter (Principle 13), the GRI Guidelines (SO2, SO3, SO4), Global Compact Principle 10 and the OECD MNE Guidelines (Chapter VI). The content and interpretation of these norms are divergent, eg with regard to facilitating payments (sometimes allowed, sometimes prohibited).5 In this regard, it seems important that private regulation also provides for mechanisms for the interpretation and implementation of the norms as well as for dispute settlement.

It is interesting to transpose the characteristics of quality' to the three most widely-used private regulations in the CSR - the UN Global Compact

Principles (2000); the OECD MNE Guidelines and the GRI Guidelines:

1.

UN Global Compact Principles (2000): one might wonder whether these could be considered to be flexible and easily adaptable to any current needs, since they are as it were carved in stone. The nature of the UN Global Compact Principles is predetermined; they represent universally accepted basic principles that are unlikely to be subject to change overnight. Moreover, they are directly derived from well established international legal instruments that have enjoyed universal consensus for years, namely the UDHR, the ILO Declaration on Fundamental Principles and Rights at Work, and the Rio Declaration on Environment and Development. It should also be noted that a Principle on corruption was included in 2004, thus indicating a limited openness to adapting to important new developments. There was resistance against including a new principle because the deal' was that there would be no more principles.6 Since the UN Global Compact Principles have been defined so broadly that they can be used widely, they have been criticised for lack of clarity. Vagueness does not enhance quality of a regulation. In response to these criticisms, the Global Compact website now provides an explanatory text to each Principle as well as tools and guidance materials. This effort can be seen as increasing the level of interpretation and predictability. The text describes, for instance, the scope of application to companies, and the minimum compliance required. It also provides some examples for each Principle of how companies are expected to support and respect the Principles through their daily activities;7

2.

OECD MNE Guidelines (1976; revised in 2000): generally, these are well adapted to modern needs. However, as stressed by Ruggie, the current human rights provisions in the OECD MNE Guidelines are said not only to lack specificity, but in key respects to have fallen behind the voluntary standards of many companies and business organisations.8 Indeed, a revision of the Guidelines to address these concerns has been recommended, and the OECD is considering this.9 Concerning 'quality control', the OECD Investment Committee has oversight responsibility for the OECD MNE Guidelines. The so-called NCPs, established on a national level by each OECD Member State, are responsible for encouraging the observance of the Guidelines at the national level. The NCPs also ensure that the Guidelines are known and understood by the different parties.10 In addition, the OECD MNE Guidelines are complemented by Commentaries', which provide explanations of the text and the implementation procedures. Clarifications also provide interpretations of how certain provisions of the Guidelines should be understood, as a result of deliberations by the Investment Committee.11 Since the OECD MNE Guidelines are recommendations addressed by governments to companies, they can also be seen as being more in harmony with existing systems of norms than other initiatives coming from international organisations or private actors alone. Actually, they refer to local law, which may support the coherence of applicable rules;12 and

3.

GRI Guidelines (since 2000; the G3' version was launched in 2006): these can be considered the most flexible and up-to-date of the three private regulatory regimes discussed here, due to the continuous improvement of their framework and its universal application.13 Supplements have also been newly developed by activity sectors in consultation with sector experts, companies and consultants. This development has improved the way complex and technical issues are dealt with, thereby enhancing the possibility of putting them into practice. The GRI Guidelines' adoption and their maintenance and revision, have also involved the participation of several experts from relevant fields. In addition, the GRI has developed some learning programmes and other tools on reporting and on how to use the GRI Guidelines; this can add to the level of the norms' predictability by providing an explanation to the text and to the procedures to be followed. With respect to the question of consistency with existing legislation it should, however, be noted that the GRI framework has not been linked to legislation concerning financial reporting. The GRI sustainability reporting is complementary to financial reporting by companies, but the two forms of reporting are not legally connected. This is a weakness of the GRI Guidelines which should be addressed as soon as possible, since investors are interested in learning how responsible corporate conduct influences

financial results. We recommend that (empirical) research in this field be expanded, accelerated and be made widely accessible.14

In summary, the quality of private norms relies on a fine balance between their degree of flexibility or adjustment to societal changes and the certainty or predictability of the norms. When compared to public regulation in this field, private CSR regulations are generally better adaptable to changes and the current needs of a particular sector. However, the level of predictability remains limited. Despite efforts to communicate information on their application, the fact that private norms are generally not interpreted and applied by a constant judiciary power cannot offer the same level of predictability as is the case with public norms. On the other hand, the integration of private regulatory regimes in new public regulations, sometimes by cross-reference to the GRI Guidelines and/or OECD MNE Guidelines, such as those mentioned in section 6.5 (Sweden and Denmark), represents an interesting new development in the CSR field, which increases the quality of both private and public regulation.

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