Einde inhoudsopgave
Corporate Social Responsibility (IVOR nr. 77) 2010/6.12
6.12 The enforcement of the regulation
Mr. T.E. Lambooy, datum 17-11-2010
- Datum
17-11-2010
- Auteur
Mr. T.E. Lambooy
- JCDI
JCDI:ADS365788:1
- Vakgebied(en)
Ondernemingsrecht (V)
Voetnoten
Voetnoten
HiiL Conference Report supra note 96, pp. 10, 31-32.
Nike v. Kasky, 539 U.S. 654 (2003).
HiiL Conference Report supra note 96, pp. 10, 31-32.
See the annual reports of the Dutch Corporate Governance Monitoring Committee; at: http:// www.commissiecorporategovernance.nl/Information%20in%20English, accessed on 15 May 2010.
Statement of the European Corporate Governance Forum on the comply-or-explain principle, 22 February 2006, at: http://ec.europa.eu/internal_market/company/docs/ecgforum/ecgf-comply-explain_en.pdf, accessed on 21 May 2009.
HiiL Conference Report, supra note 96, p. 32.
HiiL, supra note 6, p. 24.
G. Knight and J. Smith, 'The Global Compact and Its Critics: Activism, Power Relations, and Corporate Social Responsibility' in J. Leatherman (ed), Discipline and Punishment in Global Politics: Illusions of Control (Palgrave Macmillan, New York, 2008).
See e.g. Global Compact Critics, at: http://globalcompactcritics.blogspot.com/, accessed on 21 May 2009.
OECD, supra note 104.
T. Baines, 'Integration of Corporate Social Responsibility through International Voluntary Initiatives' (2009), p. 16, Indiana Journal of Global Legal Studies, p. 223. According to the OECD, as of June 2005, over 100 complaints had been filed by NGOs and trade unions since the Guidelines were revised. OECD Watch, 'Five years on: Review of the OECD Guidelines and National Contact Points' (2005) p. 5. OECD Watch is a coalition of 84 civil society organisations and has highlighted a number of perceived deficiencies in the implementation of the Guidelines and recommend reforms.
OECD, supra note 104.
Ruggie, supra note 21, p. 26.
Periodic evaluation of the Export credit insurance facility of the state see supra note 75, p. 4. In 2004, some Dutch Members of Parliament proposed to include in the mandatory corporate annual reporting a new obligation for companies to express whether they comply-or-explain' with the OECD MNE Guidelines. Such proposal was withdrawn in 2005. See section 4.4.5 of this book.
J. Evans, ILO: 'OECD Guidelines - one tool for corporate social accountability', 2003, at: http://www.ilo.org/public/english/dialogue/actrav/publ/13074.pdf, accessed on 10 April 2009. See UK Department for Business, Enterprise & Regulatory Reform (BERR), United Kindom National Contact Point for OECD Guidelines for Multinational Enterprises, at: http://www.berr.gov.uk/whatwedo/sectors/sustainability/nationalcontactpoint/page45873.html, accessed on 4 April 2009.
R. Leeson, J. Ivers and D. Dickinson, 'Sustainability Reporting by the Public Sector: Practice, Uptake and Form', GRI G3, at: http://www.globalreporting.org/NR/rdonlyres/FAFD9A06-702A-4AA8-988C-979DBCCBC948/0/LeesonEtAlSustReortingByPublicSector.pdf, accessed on 10 April 2009. They explained that 'the case for sustainability reporting by public agencies is only starting to be articulated'.
KPMG Survey supra note 42, pp. 55 and 62. At the national level, 39 per cent of the companies surveyed choose for independent assurance.
Kasky, supra note 123, Wal-Mart, supra note 86, Council Directive (EC) 2005/29 on unfair business-to-consumer commercial practices in the internal market, OJ L149/22,2005.
T. Steinweg and J. Oldenziel, SOMO/OECD Watch Secretariat, 'The OECD Guidelines for Multinational Enterprises: A modest proposal', at: http://www.ethicalcorp.com/content.asp?ContentID=5299, accessed on 10 April 2009.
The Amsterdam Declaration on Transparency and Reporting, March 2009, at: http://www.globalreporting.org/CurrentPriorities/AmsterdamDeclaration/, accessed on 3 May 2009.
First of all, enforcement is a means to an end, not an end in and of itself. The goals of enforcement could be the compliance with the regulation and the achievement of the underlying goals of the regulation.
Often, a private regulation contains norms that are also included in formal and hence legally enforceable legislation. At the same time, the regulation usually contains other norms that prescribe higher standards of corporate conduct than the formal legislation does. In assessing the enforceability of a private regulation, this distinction should be taken into account.
In examining the enforcement of private regulation, two types of enforcement should be distinguished: (1) enforcement outside the legal arena, for instance, by pressure from NGOs, consumers or trade unions or by applying a compliance mechanism within the group or sector to which the private regulation pertains (eg cancellation of the membership or de-certification of a private regulatory regime); and (2) enforcement within the legal arena (including litigation, arbitration, government pressure for new legislation, or applying different tax treatment to actors that do not comply with a certain privately established standard).1 Enforcement in the legal arena can also be found via private contract law, such as that described in section 6.8 in relation to Wal-Mart and IKEA. Furthermore, this can be done through tort law, as was demonstrated by the decision in Kasky v. Nike. In this case, Kasky sued Nike for unfair and deceptive practices based on the fact that Nike had made a number of 'false statements and/or material omissions of fact' - including in its privately established 'supplier code of conduct' - concerning the working conditions under which its products are manufactured.2
This gives rise to the following questions: have any specific legal or nonlegal mechanisms been created to enforce private regulation, and, if so, how effective are they? Furthermore, a relevant factor in assessing enforcement is whether private regulation reflects the industry sector's best practices or rather intends to stimulate the sector to develop such best practices. The bottom line is that the codification of best practices would be expected to result in better compliance by the sector since most addressees of the norms already act in accordance with those best practices and, moreover, they will put pressure on their peers that do not yet comply with the regulation to do so.3
There are also some distinctions at the enforcement level between principle-based' and rule-based' regulation. Rule-based instruments are said to provide guidance for desired conduct in a clearer way than principle-based regulation. Some consider this lack of clarity in principle-based regulation to pose a number of challenges and risks for compliance and enforcement because it relies on interpretation and fosters a less clear regulatory environment.
Another element is whether there is state involvement in the enforcement of private norms, and, if so, to what extent. An example of this are corporate governance codes. The process of drafting them is usually initiated by the government. Various actors in the private sector itself subsequently participate in formulating the norms. Subsequently, the government sanctions the application of the codes by obliging companies to include a comply-or-explain' statement in their publicly accessible annual reports regarding the corporate governance code. Such a statement informs the reader that the company complies with the applicable corporate governance code. If the company does not fully comply, the statement explains to what extent the applicable code has indeed been followed by the company and why the company has not complied with the other parts of the code (compare section 6.5 above). The fact that the government imposed the comply-or-explain' measure supports compliance with the privately developed corporate governance code; this is an example of indirect government involvement. Empirical research shows that the comply-or-explain' mechanism has worked very well in corporate governance practice.4 This mechanism was introduced by the UK Combined Code and has been followed by many European governments, with respect to their national corporate governance codes.5 This development has improved the dialogue on corporate governance in shareholder meetings, as well as the transparency concerning corporate governance practices.
Another interesting question concerns the situation in which there is a (potential) normative conflict between certain public and private norms: how does this affect the process of enforcing each of the public and private norms?6 Section 6.10 on the quality of the norms included examples of conflicting private and public regulations.
Finally, the enforcement of private regulation is often said to be more effective in comparison to the enforcement offormal regulation, because ofthe voluntary nature of the process and perhaps also because of peer pressure when the regulated subjects have been involved in its creation.7
These general observations regarding enforcement will now be applied to the three selected private regimes:
UN Global Compact Principles: first of all, the UN Global Compact Principles can be seen as difficult to enforce, since they constitute a principle-based instrument rather than a rule-based instrument. The Principles are broadly defined, eg undertake initiatives to promote greater environmental responsibility', which makes it rather laborious to ascertain whether a company subscribing to the UN Global Compact Principles fully complies with them. Furthermore, the Global Compact relies on voluntary compliance and self-policing on the part of its corporate participants, and does not involve mechanisms of external monitoring, verification or sanctioning to ensure compliance in line with certain commitments and claims. The Global Compact lacks legally binding enforceable mechanisms to ensure that companies are accountable for their actions and inactions'. They must only disclose on their websites their progress concerning compliance with the Principles.8 Nevertheless, it should be pointed out that according to its Communication on Progress policy, corporate participants can be delisted for a repeated failure to disclose their progress. This is not only the case in theory: as of March 2009, nearly 1,000 companies have been delisted on these grounds, which demonstrates the seriousness of this mechanism. This system can be considered enforcement outside the legal arena' . The Global Compact is also subject to pressure from different organisations, such as NGOs, to delist companies.9 Interestingly, GRI-based sustainability reports are also recognised by the Global Compact as Communication on Progress, thereby interlinking these private regulatory regimes.
OECD MNE Guidelines: a new enforcement mechanism has been established outside the legal arena: the afore-mentioned NCPs (section 6.10). The NCPs are generally part of a government office, although the Dutch NCP consists of people who are independent from the government. An NCP is responsible for the observance of the OECD MNE Guidelines at the national level. Its role is to gather information on national experiences with the Guidelines, to handle enquiries and to assist in solving problems. The NCP is expected to offer a forum for discussion and to assist the business community, labour organisations and other parties concerned in dealing with the issues at stake.10 In fact, the Guidelines provide any interested person or organisation with the right to submit complaints - the so-called specific instances' concerning alleged breaches of the Guidelines by multinational companies. Since 2000, NGOs can also submit their complaints. If it has been determined that a company has breached the Guidelines, the NCP issues a public statement providing recommendations to the company on how it could bring its future practices into line with the OECD MNE Guidelines.11 Furthermore, the NCPs are held accountable for their actions, and must submit an annual report of their activities to the Investment Committee.12 Pressure from different organisations, such as the OECD Watch and other civil society organisations, is also considered part of enforcement outside the legal arena. According to Ruggie, NCPs are potentially an important vehicle for providing a remedy. For him, however, with a few exceptions, experience suggests that in practice many of them have too often failed to fulfill this potential.13 It will be noted that some OECD countries have also adopted policies to support compliance with the OECD MNE Guidelines. For instance, the observance of the Guidelines is included as a condition for export credit guarantees by certain governments; eg Dutch and German companies have to state that they have read and comply with the Guidelines,14 while French enterprises have to sign a letter verifying that they are aware of them. Such a condition is also being discussed in the CzechRepublic, Finland and Sweden. In 2006, the UK Government adopted significant reforms for handling complaints under the OECD MNE Guidelines;15 and
GRI Guidelines: the GRI Guidelines and Sector Supplements reflect the industry's and the sector's best practices. For certain sectors or themes, they even stimulate 'more ambitious' best practices than the ones presently in use. This is the case, for instance, for the GRI Sector Supplement for public agencies.16 With regard to an internal enforcement mechanism, the GRI does not engage in any assurance, auditing or verification. However, as explained in section 6.5, companies are nevertheless encouraged by the GRI to carry out an external audit of their sustainability reports. The KPMG Survey showed that 40 per cent of the sustainability reports of the world's 250 largest companies were reviewed by an independent professional assurance provider. Key drivers for independent assurance are the credibility of the report and quality of the reported information.17 The GRI provides the Application Level regarding the extent to which the GRI Guidelines have been utilised for reporting and, in addition, the company indicates whether external assurance has been carried out. In the case of sustainability
reporting, certain additional forms of enforcement outside the legal arena can be foreseen; for instance, false or misleading information contained in GRI reports can be targeted by NGO campaigns. Enforcement in the legal arena is also possible - indirectly - through contractual relationships. For instance, this can be the case with a company borrowing money from a bank where reporting pursuant to the GRI Guidelines has been stipulated as a condition in the loan agreement. From another perspective, companies will be induced to disclose only correct information in a GRI report in order to avoid tort claims for misleading information or claims based on unfair trade practices.18 In addition, the functional cross-references in the GRI indicators to compliance with the UN Global Compact Principles and the Earth Charter make the use of the GRI Guidelines more relevant as consistency improves.
In conclusion, enforcement mechanisms regarding compliance with private regulation exist outside and within the legal arena. They can be characterised by a wide diversity in their methods and approaches. To increase compliance with private regulation, some recommend that governments include private regulations, such as the OECD MNE Guidelines, as conditions for subsidies, procurement contracts and public-private partnerships, thus not limiting their application to export credits only. For example, the NGO OECD Watch emphasizes that such use of the [OECD] guidelines would not only remove ambiguity of its status and reward good business conduct, but it would also sanction those companies behaving unsustainably and act as an incentive for improvement'.19 Another interesting move was the call by the GRI in March 2009 on the G20 governments convening to discuss the financial and economic crisis to take leadership by introducing policy requiring companies to report on ESG [Environmental, Social, Governance] factors or publicly explain why they have not done so'.20