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How to stop businesses behaving badly

26 June 2014
by Patrick Love
"Safe and hygienic"? Rana Plaza, 24 April 2013

“Safe and hygienic”? Rana Plaza, 24 April 2013

Forty of the 100 largest economic entities in the world in 2012 were corporations, not countries, according to business consultants Global Trends. The sheer size of multinational enterprises (MNEs) leads many citizens to worry that they will abuse their economic power and political influence. This is not a new concern, and in fact was one of the reasons the OECD produced its Guidelines for Multinational Enterprises in 1976. The original Guidelines were published as an Annexe to a Declaration on International Investment and Multinational Enterprises. At the time, much of the pressure to create some kind of framework for MNE activities came from the firms themselves.

After the Second World War, government intervention in the economy was direct and widespread, through nationalisations and strategies designed to build strong national champions in key domains. At the same time, today’s highly integrated, globalised economy was starting to emerge, and companies at the forefront of the process wanted reassurances that their investments abroad would be safe and government regulation would not constrain them too much.

There were calls for new rules from other points of view too, for example trade unions, but also from developing countries. The OECD texts actually came two years after the UN’s Charter of Economic Rights and Duties of States.

Given the impenetrability of much official language, then as now, the Guidelines were remarkably clear and straightforward, saying in a few dozen pages what companies and governments could and could not do, and recognising that there are problems, not just “challenges”. Subsequent revisions have respected this approach, for example stating that enterprises should: “Contribute to the effective abolition of child labour”; or “Not discriminate against their employees… on such grounds as race, colour, sex, religion…”.

The big question of course is how useful the Guidelines are in making corporations behave responsibly and resolving conflicts between firms and the communities they operate in. The Guidelines are not legally binding and contain no means of punishing companies that don’t respect them. They operate through National Contact Points which are expected to help resolve issues concerning implementation of the Guidelines. points out, “In the specific instance mechanism, the Guidelines possess a unique feature that provides the means to actively attend to and potentially resolve conflicts between aggrieved communities and companies”.

The Guidelines act as a global benchmark of corporate social responsibility and a strong signal of a government’s attitude towards corporate behaviour. They can also inspire actions that will be pursued through other instances. However, their biggest impacts could be due to reasons the creators of the original text could not have foreseen.

At the time of the 2000 revision, NGO Corporate Watch published a particularly severe criticism of the Guidelines, saying they were little more than a PR handbook. This criticism was echoed elsewhere, since even if a National Contact Point made a strong recommendation, the means to verify its implementation were usually missing, or beyond the means of those bringing the case. That’s still true to some extent, particularly in non-democratic countries, but the sudden, massive expansion of modern means of communication and social media over the past few years has changed things.

This is altering the balance of power between those with something to hide and those seeking to expose it. When the Guidelines were created, few cases got much attention in national let alone international media. In August 2010, when trade unions in France and the USA announced they were going to bring a case under the Guidelines concerning labour practices in Colombia, the news was published in the Internet editions of major newspapers even before the unions had time to update their own websites.

The fact that workers in North America, South America and Europe can mobilise so easily around a common grievance, and see the Guidelines as the best tool for doing so, suggests that an Annexe published nearly 40 years ago can be a useful weapon in the fight to make the 21st century economy fairer. And as the Colombia case shows, the company doesn’t have to be operating in the OECD area, it only has to be registered in a country that has signed up to the Guidelines. That’s why the WWF were able to bring a case against UK oil company Soco under the Guidelines last year to stop them drilling in the Virunga World Heritage site in the DR Congo. Earlier this month, Soco announced it was ending its operations in Virunga.

But despite every big company now boasting about their ethics and efforts, there is still a large gap between what responsibility means in theory and how it is implemented on the ground. At the OECD’s Global Forum on Responsible Business Conduct this week, policy makers, businesses, trade unions, and civil society are debating how to bridge that gap. There are some fairly technical sessions on how the Guidelines work, but most of the Forum will be looking at controversial issues including the clothing industry after the Rana Plaza tragedy in Bangladesh; investing in Myanmar; due diligence in the extractive sector; agricultural supply chains; and responsible business conduct in the financial sector.

Useful links

OECD work on corporate governance

OECD Watch, an “international network of civil society organisations promoting corporate accountability and responsibility”

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