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Corporate Social Responsibility (IVOR nr. 77) 2010/6.8
6.8 Private contracts regulating CSR behaviour
Mr. T.E. Lambooy, datum 17-11-2010
- Datum
17-11-2010
- Auteur
Mr. T.E. Lambooy
- JCDI
JCDI:ADS364558:1
- Vakgebied(en)
Ondernemingsrecht (V)
Voetnoten
Voetnoten
KPMG Survey, supra note 42, p. 41. See also e.g. M.P Vandenbergh, 'The New Wal-Mart Effect: the Role of Private Contracting in Global Governance',in UCLA Law Review, 54, 2007, p. 913.
It has even been suggested that this transformation 'challenges the regulatory monopoly of states and may contribute to the construction of a global system of customary law as powerful as the English common law was in its day'. L. Catâ Backer, 'Economic Globalisation and the Rise of Efficient Systems of Global Private Lawmaking: Wal-Mart as Global Legislator', Symposium: Wal-Mart: The New Superpower, in University of Connecticut Law Review, 39 (4), 2007, p.1739.
L. Hennebel and G. Lewkowicz, 'Corégulation et responsabilité sociale des entreprises' in T. Berns et al. (eds.), Responsibilités des entreprises et corégulation (Bruyland, Bruxelles, 2007), p. 176. Cp. with Lex Mercatoria, see K.P. Berger, 'The New Law Merchant and the Global Market Place: a 21st Century View ofTransnational Commercial Law' in K.P. Berger (ed), The Practice of Transnational Law (Kluwer Law International, The Hague, 2001); A.C. Cutler, Private Power and Global Authority: Transnational Merchant Law in the Global Political Economy (Cambridge University Press, Cambridge, 2003).
The class action was filed on behalf of two groups of plaintiffs: American and non-American. The non-American plaintiffs - who work at Wal-Mart's foreign suppliers -invoked being subjected to forced overtime, payments below the legal minimum and forced to work in conditions which are detrimental to health and safety and in violation of human rights. The American plaintiffs (California residents) work for competitors of Wal-Mart in the US. They alleged that pay and benefits were cut as a result of Wal-Mart's entry into the market; their employers had to compete with Wal-Mart. Plaintiffs stated that they have been harmed by Wal-Mart's unfair business practices under California's Unfair Business Practices Act §17200 and alleged unjust enrichment under California state law. All claims were brought in the US because Wal-Mart's Standard for Suppliers Agreement is premised and controlled by American law; Wal-Mart claims that it monitors and enforces its Code of ! Conduct from its headquarters in the US, and the Standard for Suppliers is advertised as its Code of Conduct for foreign suppliers. The non-American plaintiffs also alleged that they would be subjected to reprisal if they were to pursue claims in their home countries. Wal-Mart Watch, 'Global Labour Complaints about Wal-Mart Stores, Inc.', at: http://walmart-watch.com/research/documents/global_labor_complaint_against_wal_mart_stores_inc/, accessed on 10 April 2009. The official filing can be downloaded from the website. See also <http://laborrights.org> accessed 15 May 2009.
The claim was dismissed on 30 March 2007. According to information provided by International Rights Advocates (a USA-based non-profit organisation) in October 2008, the plaintiffs are in the process of filing an appeal (Jane Doe et al v. Wal-Mart Store, INC., Case No. CV-05-7307 AG, US District Court, Central District of California). International Rights Advocates, Cases: Wal-Mart, at: http://www.iradvocates.org/walmartcase.html, accessed on 10 April 2009. Under Dutch law, the relevant question would be whether the Wal-Mart code of conduct, or the supplier contract referring to this code of conduct, is capable of creating rights for third parties such as the foreign suppliers' employees. Furthermore, one could think of tort or unfair trade practices including misleading communications. See also: Gebroeders Beentjes BV v. Pays-Bas, 20 September 1988, C-31/87, European Court of Justice, on the imposition of conditions of a social nature relating to the employment of long-term unemployed persons in awarding a public works contract, and the direct effect of the Directive.
IKEA, Suppliers', at: http://www.theikeaway.ca/en/wwd-worldwide-suppliers.shtml, accessed on 10 April 2009. IWAY is based on provisions included in the United Nations Universal Declaration of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, and the Rio Declaration on Environment and Development.
IKEA, Our position on Forestry', at: http://www.theikeaway.ca/en/wwd-worldwide-suppli-ers-forestry.shtml, accessed on 10 April 2009. IKEA explains about forestry: IKEA has foresters working in different locations around the world to check up on suppliers' compliance with our forestry rules. We also require all of our wood suppliers to complete→ our annual Forest Tracing System questionnaire, which asks for the origin, volume and species of all wood used in IKEA products. Based on the results of this questionnaire, we send our foresters to audit selected wood suppliers. A third-party auditor also conducts wood supply chain audits for IKEA'.
WWF, 'WWF and IKEA co-operation', at: http://www.wwf.se/source.php/1121494/wwf_ikea_cooperation_leaflet_april2007.pdf, accessed on 10 April 2009. See also: www.panda.org/ikea, accessed on 21 July 2010.
As is becoming apparent, public legislation and private regulation are not alone in impacting corporate conduct. Indirectly, private regulation also results in companies imposing requirements on other companies to behave responsibly. They do so by including clauses to that end in their bilateral contracts. This phenomenon can be seen in loan agreements, in which lenders impose on borrowers the obligation to refrain from human right abuses, to prevent corruption by company employees and to avoid environmental damage. A similar trend in supply agreements confirms this development. This can best be explained as follows. Globalisation is changing the way corporations obtain materials and sell their products and services. Western companies outsource parts of their production to low-income countries; they also transfer whole factories to resource-rich areas to reduce transport costs. At the same time, they source services in, such as call centre facilities and ICT services, from foreign subsidiaries or other companies. Moreover, globalisation is leading to increased industry concentration, which implies that suppliers are fighting more aggressively to sell to fewer, larger multinational companies. As a result, buyers have the power to impose conditions of purchase, including CSR-related policies.
The KPMG Survey revealed that over 90 per cent of the 250 largest companies in the world have a supply chain code of conduct. As an illustration of the bargaining power of multinational companies at the supply-chain level, several authors have pointed to the importance of the giant American retailer Wal-Mart as an important emerging private actor in the transformation of lawmaking, referring to it as a 'global legislator'.1 They highlight how Wal-Mart is able to use its contractual relationships to regulate behavior among its suppliers around the globe with respect to product quality, working conditions for the suppliers' employees, ethical conduct, etc.2 This technique of requiring compliance with certain codes of conduct or contractual norms can produce important global regulatory effects, the so-called domino effect' , when an industry leader decides to impose its code on its suppliers.3 This is an example par excellence of bottom-up internationalisation of legal standards'.
Can a company be held legally responsible for violations of its code of conduct due to the behavior of its foreign suppliers? This question was examined through the class action for injunctive relief and damages filed against Wal-Mart in 2005. The plaintiffs invoked a breach of Wal-Mart's supply contracts with garment factories located outside the US that require foreign suppliers to adhere to Wal-Mart's code of conduct (the Standards for Suppliers Agreement) as a condition for supplying merchandise to Wal-Mart. They alleged a violation of Wal-Mart's obligation to ensure suppliers' compliance with this code of conduct and to diligently monitor working conditions in supplier factories.4 This case - which is still pending - actually uses an innovative theory that Wal-Mart's code of conduct created a contract, and that the workers at the supplier factories are third party beneficiaries of that contract.5Another example of how this 'domino effect' can work can be seen when looking to the international home products retailer IKEA. Following severe criticism from the public concerning its environmental and social behavior, IKEA adopted a code of conduct for its suppliers: the IKEA Way on Purchasing Home Furnishing Products (IWAY).6 IWAY covers IKEA's minimum requirements relating to the environment as well as social and working conditions, including child labour. Concerning the environment, IKEA has implemented certain measures for a more sustainable use of forest resources. The company now purchases its wood exclusively from suppliers which meet its sustainability requirements for sourcing and producing timber, which include regular compliance check-ups and supply-chain audits. IKEA's wood suppliers must follow a four-step programme requiring, among other things, developing forest management standards certifiable by the Forest Stewardship Council.7 IKEA cooperates with the World Wild Fund for Nature (WWF) in promoting responsible forestry and better cotton production. They are teaching cotton farmers in Pakistan and India to apply production techniques that use water more efficiently and reduce the use of pesticides and fertilizers.8
Considering that IKEA represents one of the bigger purchasers of raw materials in the world, its policy can have a considerable practical impact. However, one can question whether this is the correct way in which to ensure worldwide sustainable and responsible supply-chain management. Is it appropriate to leave vital international matters, such as labour rights and environmental protection, in the hands of multinational companies? The adoption and enforcement of private regulation to govern the international conduct of companies around the world raises several questions.