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Paul Redmond[*]
Responsibility requires accountability and effective sanctions to make an impact.
Corporations and human rights are strange but inevitable bedfellows. Many human rights organisations are reluctant to engage with business, preferring to deal exclusively with nation states in the implementation of the human rights standards they have assumed under international instruments. Business generally finds this exclusion from the state- based system of global regulation congenial since it frees it for the business of business and respects the central cultural and legal value of shareholder primacy and its correlate, profit maximisation. There is accordingly agreement between parties who may agree on little else that human rights are the responsibility of government. That position is now untenable.
Recent decades have seen inexorable growth of the power of non-state economic actors, whether international economic organisations such as the World Bank, IMF and WTO, or large transnational corporations (TNCs). This article is concerned solely with TNCs. One measure of that power is the simple fact that the revenues of TNCs often exceed those of the countries that are host to their operations. This gives the TNC superior bargaining power in negotiations with national governments over the terms of foreign investment, especially in small and poorer states. Economic globalisation has accentuated these power differentials; the increased mobility of capital and the resulting competition between potential host countries for lower regulatory barriers to foreign direct investment weakens the leverage of governments over TNCs.
TNCs have a major influence on the economic and social development of the populations that are host to their investment. At their worst, those effects result in environmental degradation, exploitation of economically weaker communities (including through the use of child labour), disregard of political freedoms and the right to labour organisation, failure to respect host nation sovereignty and international human rights obligations generally.
Non-state actors such as TNCs have no formal status under inter- national law and accordingly no responsibility and accountability under it. Of course, TNCs should comply with laws enacted by host countries in discharge of obligations that their hosts have assumed under international law; however, power differentials and the problems inherent in enforcing domestic laws against global organisations hinder host governments in enforcing those standards against TNCs. That is a particular concern for countries without a strong commitment to the rule of law or institutions to secure its observance.
Corporate law does not repair these weaknesses. Its concerns are with financial accountability to investors, not accountability for human rights standards. Human rights concerns are for the most part extraneous to corporate regulation, culture and remedies. The consequence is that the power of TNCs to affect global human rights is unmatched by systems of accountability under either international law or domestic systems of corporate law. If respect for human rights is to become the grundnorm of the global social and economic order, the conduct of significant non-state actors needs to be integrated into international human rights law or respect for human rights become part of corporate law. Since the prospects of the former are stronger, they are the focus of this essay.
This article examines four possible approaches that might be adopted to foster a consciousness among TNCs of the human rights impact of their activities and hold them accountable for their conduct against human rights standards:
• the tentative movement to develop international human rights instruments imposing legally binding obligations on TNCs directly;
• the development of voluntary guidelines and codes of conduct;
• UN Secretary-General Kofi Annan’s Global Compact initiative; and
• attempts at the domestic level by some countries to impose human rights obligations on locally incorporated enterprises in relation to their overseas operations.
The common theme of several of these developments is the search for an effective sanction so that human rights observance is not lost in the competition for foreign direct investment or left to the individual corporate conscience. If sanctioned, that observance would not depend on noblesse oblige and good intentions, but would be underpinned by rights. But, of course, that sanction, even if politically achievable, may not be cost-free. There are critical choices here in assessing alternative strategies and prospects.
Related developments include the greater willingness of some national courts to hear proceedings against a locally based TNC in respect of foreign subsidiary activities, and not insist that they be brought in the foreign jurisdiction. Thus, the House of Lords has recently held that workers from mines in South Africa suffering from asbestos-related diseases might bring claims against an English-based TNC in the English courts.[1] This judgment may open the door to legal suits against companies in their home jurisdiction for conduct committed in countries with no provision for legal or machinery aid for similar large claims or class actions.[2] Similarly, the willingness of an Australian court to hear the claim in relation to BHP’s Ok Tedi mine in PNG encourages the adoption by TNCs of similar environmental standards in foreign as in its domestic operations.[3] Treatment of these developments is outside the scope of this essay.
Several mechanisms might be adopted to secure international regulation of TNC activity. For example, an international treaty or other instrument might regulate TNC activity, with direct enforcement through an international tribunal with civil and perhaps criminal sanctions or through existing UN agencies using less formal sanctions (eg, public naming) against TNCs that breach the treaty. TNCs would not be parties to the instrument; its jurisdiction to sanction would arise from the consent of host and home nations signified by their execution of the instrument.
There have been consistent attempts over the past 30 years to fashion an international system of human rights obligations bearing on TNCs directly and prescriptively. Although these attempts have largely been unsuccessful they have not been abandoned.
The initial impetus arose from a complaint by Chile in 1972 to the United Nations Economic and Social Council alleging interference by a TNC, ITT, in its domestic political affairs. A coup d’etat against the elected Allende government succeeded in the following year. Following a report of a group of eminent persons, the UN established the Commission on Transnational Corporations in 1975 to produce a draft Code of Conduct for Transnational Corporations.[4] The Draft Code dealt with matters including non-interference in the internal affairs of host countries and inter-governmental relations, corrupt practices, respect for human rights and fundamental freedoms, labour standards, transfer pricing, taxation, technology transfer, anti-competitive behaviour, consumer protection and environmental protection. It enjoined TNCs to respect human rights and fundamental freedoms of the countries in which they operate.
The Draft Code did not, however, attract sufficient support in the UN. The breadth and status (whether prescriptive or voluntary) of the Draft Code and the changing international climate of competition for foreign direct investment weakened potential support and the lengthy negotiations over its terms were finally abandoned in 1992.
The issue of a legally binding code did not end there. In 1999 the UN Sub-Commission on the Promotion and Protection of Human Rights (the main subsidiary body of the UN Commission on Human Rights), ‘deeply concerned at the preponderance of the transnational corporations in all spheres of life and at the impact of their activities and working methods on human rights’, established a working group on TNCs. The working group has developed successive drafts of a document currently entitled Draft Fundamental Human Rights Principles for Business Enterprises. The Draft Principles require business enterprises to ensure respect for, prevent abuses of, and promote international human rights within their spheres of activity. The draft adapts language from existing voluntary codes and guidelines prepared by bodies such as the OECD, ILO, corporations, unions, and NGOs. It is intended to be a comprehensive guide by addressing a wide range of human rights issues including non-discrimination and freedom from harassment and abuse, slavery, forced labour and child labour, and assuring a healthy and safe working environment, fair and equal remuneration, proper hours of work, freedom of association and the right to collective bargaining as well as war crimes, crimes against humanity, respect for national sovereignty and the right of self-determination.[5]
It is not presently clear whether the final document will be an instrument containing voluntary guidelines or binding standards for TNCs. In recent discussions the working group has expressed a preference for legally binding standards although the question of the formal status of the Principles is still to be settled. Whatever their final status, the Draft Principles contemplate that effective implementation will require not only their internalisation in the policy, practice and culture of individual corporations but also coordinated action by unions, NGOs, industry associations, governments and the UN itself.
Legally binding international norms have obvious advantages over other models. They assure the prospect of uniform standards of human rights observance by TNCs through collective participation in standard setting and enforcement. This offers a corrective to power imbalances in bilateral negotiations between TNCs and potential hosts in the competitive environment for mobile investment capital.
There are, however, powerful considerations weighing against legally binding norms governing TNC conduct. The most obvious is the present improbability of the UN General Assembly adopting a binding code. It is unrealistic to expect that human rights standards for TNCs would be promulgated as a legally binding UN instrument without a lengthy process of consensus building and a period with intermediate status as ‘soft’ law guidelines for action. Adoption of a binding code would also require mechanisms for timely revision so that it does not date and impede new solutions to rapidly changing conditions. A binding code also requires a mechanism to monitor compliance with its obligations by TNCs, their contractors and suppliers; this mechanism faces formidable cost and feasibility problems.
The second body of human rights norms affecting corporate conduct is much more in evidence — non-binding guidelines and codes of conduct. Examples fall into several categories. The first is the guidelines adopted by international organisations with direct or indirect government participation, such as the OECD Guidelines on Multinational Enterprise[6] and the ILO Tripartite Declaration on Principles Concerning Multinational Enterprises and Social Policy.[7] In addition, there are guidelines prepared for particular industries (eg, the Apparel Industry Partnership between apparel and footwear corporations, human rights NGOs, and unions and consumer groups to establish labour standards), framework agreements between TNCs and labour unions, codes of conduct adopted by individual corporations, and model guidelines prepared by NGOs or unions (eg, Amnesty International’s International Human Rights Guidelines for Companies).
Some codes represent combined initiatives such as the Global Sullivan Principles of Social Responsibility.[8] They are the successor in function to narrower codes addressed to US firms such as the Sullivan Principles developed in the late 1970s to govern investment and business in South Africa during apartheid and the MacBride Principles protecting against employment discrimination in Northern Ireland. The Global Sullivan Principles have been endorsed by several TNCs, NGOs and other non-profit organisations, mostly in the US. Endorsing parties express their support for universal human rights, especially those of their employees, the communities in which they operate, and trading parties. The principles cover equal employment opportunity, and employee freedom of association, health and safety, and adequate remuneration.
There are numerous other voluntary initiatives to support business engagement with human rights. They include the Ethical Trading Initiative (promotion of good practice in codes of labour standards),[9] the Global Reporting Initiative (to encourage corporate reporting on environmental sustainability issues),[10] Social Accountability International’s SA8000 (accrediting products produced under ‘humane working conditions’),[11] and Business for Social Responsibility (resources for business seeking to promote respect for the environment and human rights).[12]
Perhaps the oldest and best developed of these measures is the OECD’s Guidelines on Multinational Enterprise which form part of the Declaration on International Investment and Multinational Enterprise. The Guidelines are recommendations addressed to multinational enterprises by the 33 adhering OECD governments as standards of responsible conduct which balance the interests of foreign direct investors and host nations. Observance of the Guidelines is voluntary and not legally enforceable. The Guidelines are intended to be applied by enterprises wherever they operate and not just the (mostly developed) countries that are party to them.
Generally, the Guidelines require enterprises to ‘contribute to economic, social and environmental progress with a view to achieving sustainable development’ and to ‘respect the human rights of those affected by their activities consistent with the host government’s international obligations and commitments’. This measure seeks to bind TNCs to the international human rights commitments assumed by their host governments. They are also required to abstain from ‘improper involvement in local political activities’. However, the specific areas of detailed provision in the Guidelines mostly relate to commercial matters, namely, financial disclosure, employment and industrial relations, environmental protection, combating bribery, consumer interests, the transfer of technology, competition policy and taxation. The Guidelines are very generally expressed and fall well short of bright line rules to shape corporate conduct.
National Contact Points (NCPs) have been established to promote the OECD Guidelines and their implementation. (In Australia, the NCP is the Executive Member of the Foreign Investment Review Board.) NCPs provide a forum for discussion of the Guidelines and to assist informally with problems that arise with their application. However, NCPs do not have formal dispute resolution roles; their role is simply to facilitate and promote the Guidelines rather than to execute them or to adjudicate disputes that arise from their local application.
The Committee on International Investment and Multinational Enterprises has authority to interpret the Guidelines but may not reach conclusions on the conduct of individual corporations. In practice, the Committee’s interpretations are expressed in general terms only. The Committee does not disclose publicly the identity of corporations whose actions are under consideration. There is, accordingly, no capacity under the guidelines to sanction individual corporations even through soft measures such as public naming or declarations of breach.[13]
Although voluntary codes are not enforceable by legal sanction, they are underpinned by the reputational investment made with their adoption; that investment is strengthened by a visible public commitment to the code. This consideration is particularly strong for corporations whose brands, products or services trade in public markets and who are therefore commercially vulnerable to negative consumer sentiment. For publicly held corporations, there is the further sanction of shareholder (particularly institutional investor) resistance; its impact is felt in securities markets, particularly through the increased cost of capital raising. These sanctions are also supported by the threat of media exposure and loss of reputation. In that sense, these so-called ‘voluntary’ codes are not wholly discretionary since they are sanctioned in varying measures by media, consumer and investor pressure.
Relative to prescriptive international codes, voluntary codes have the singular advantage of feasibility of achievement. They are most effective when developed with wide support from industry actors, unions and NGOs. The potential significance of a code for an individual TNC is the commitment which it thereby makes to ethical behaviour through the standards of conduct it expresses, and the capacity for internalisation into conduct, values and culture at all levels of the corporation. Effective implementation of corporate codes requires dissemination within the corporation and among stakeholders. It also requires accountability mechanisms within the corporation, including systems for identifying and sanctioning violations and improving compliance across the corporation; in the case of TNCs, this means the myriad companies and divisions within an international group and their contractors and suppliers. The integrity and credibility of voluntary codes also depend on monitoring and verification of corporate compliance systems, including through periodic independent audit. Through these measures, a code may create living norms and not simply those ‘in the books’.
However, as human rights assurance measures, voluntary codes have serious weaknesses. First, they are not legally binding; compliance rests ultimately on the uncertain sanction of public opinion and the goodwill of the corporation. Second, most TNCs have not adopted a human rights or labour code, preferring instead to assert that they obey the law of the countries where they do business or that human rights are ‘too hard’ or ‘not our responsibility’.[14] Third, there are multiple problems with the voluntary codes that have been adopted. Since there is no authoritative international statement of the responsibilities of TNCs for human rights protection, it should not surprise that the content of codes is highly variable; a recent survey of corporate codes found that only 44% made explicit reference to human rights, prompting the UN High Commissioner for Human Rights to say that the proliferation of voluntary codes has the potential to confuse or misconstrue concepts of corporate social responsibility.[15] The UN Draft Principles project referred to above may in time meet this need. Further, few codes provide for independent oversight; some estimates suggest that three-quarters of voluntary codes do not contain an implementation mechanism and are little more than declarations of business ethics. The ILO has concluded that ‘at present there is insufficient data to determine the actual impact of [these] codes on labour practices [of TNCs]’.[16] In these circumstances the absence of an accepted standard for credible independent monitoring of human rights commitments under a voluntary code seems less egregious than it would be under a mature code system.
The Global Compact launched by the UN Secretary-General, Kofi Annan, in January 1999 to promote the aims of global corporate citizenship and social responsibility is a departure from earlier approaches. The Global Compact offers a learning model based on an informal network of UN agencies, TNCs, labour and non-governmental organisations that subscribe to nine principles. The Global Compact’s distinctive approach is to develop learning and dialogue among participants with a view to developing corporate practices that attract broad social consensus and legitimacy. In doing so, it seeks to translate complex, ambiguous and incomplete principles into standards that are born of participants’ experience and best practice. This provides, it is argued, the best opportunity to shape corporate behaviour globally.[17]
The Global Compact principles are: the protection of international human rights within participants’ spheres of influence; non-complicity in human rights abuses; freedom of association and the effective recognition of the right to collective bargaining; elimination of forced and compulsory labour and the effective abolition of child labour; elimination of discrimination in employment; support for a precautionary approach to environmental challenges; undertaking of initiatives to promote greater environmental responsibility; and encouragement of the development and diffusion of environmentally friendly technologies.
Participating corporations are asked to work on these principles in their own domains and to post annually steps they have taken to act on any of the principles on the Global Compact’s website. A learning bank is to be developed from such postings which is supported by dialogue between participants that identifies and supports good practice. Several hundred TNCs and a wide range of business groups, labour confederations and NGOs have pledged support for the Compact.
The Compact initiative and the investment the UN has made in it represent an act of faith in education and cooperation to produce an irresistible momentum for global change among enterprises that might otherwise be largely indifferent to human rights. The Secretary-General’s administrative coordination and the UN’s legitimacy will be fully extended in this challenge.
The Compact is open to criticism for its lack of legally enforceable standards and monitoring and enforcement mechanisms, and for the generality of the expression of the principles. Some NGOs have urged the UN to use the forum provided by the Compact to develop a binding, multilateral legal regime for human rights, labour rights and the environment, and not be content with a purely voluntary, generally stated, aspirational model.[18] The best practice standards that emerge from the Compact process might, however, provide the basis for a comprehensive binding code derived from the experience of Compact participants and shaped in the Compact’s dialogue process. Governments and TNCs to whom the idea of a legally binding regime is presently anathema might be persuaded to the merits of a code deriving from these voluntary initiatives.
Another means of securing human rights observance by TNCs is by their home jurisdiction enacting legally binding standards governing offshore operations, generally replicating domestic standards. At present such measures are more incipient than realised.
In 1999 the European Parliament adopted a resolution calling on the European Union to develop proposals for legally binding requirements on European corporations governing their worldwide operations and requiring compliance with human rights conventions.[19] Similarly, in 2000, legislation was proposed in the US by Representative McKinney for a Corporate Code of Conduct Bill which would require US corporations with more than 20 employees abroad to implement a code of conduct governing their employment conditions, health and safety at work, anti-corruption measures, and environmental and human rights standards. These obligations would be sanctioned through government procurement policy and foreign trade and investment assistance.[20]
In 2000 the Australian Democrats introduced the Corporate Code of Conduct Bill. The Bill applied to Australian corporations employing more than 100 people overseas. The Bill required such corporations to meet standards relating to environmental performance, employee health and safety, employment and human rights, tax obligations and consumer protection. These provisions were sanctioned through annual reports to the corporate regulator which was required to report annually to Parliament on compliance with the provisions. The Bill also made corporate officers liable to civil penalties for contraventions and gave a person suffering loss or damage as a result of contravention a right of action for injunctive relief and compensation. The Senate referred the Bill to the Parliamentary Joint Committee on Corporations and Securities which, by majority, recommended that the Bill ‘not be passed because it is unnecessary and unworkable’. The Bill lapsed.
The Bill has undoubted limitations relative to multilateral initiatives, but clear symbolism and modelling for other nations. The Bill would have been more compelling if its obligations had tracked more closely those emerging as international standards such as the UN working party on TNCs or even the revised OECD Guidelines. There is not a little merit in the dissenting comments of the Labor members of the Committee that Australian corporations operating overseas should develop codes of conduct which encompass the relevant OECD standards, and be required to give a regular report on their compliance with them and have the code and compliance report audited annually. Of course, if the European Parliament resolution or the US Bill develops national code models for offshore business activity, and address the jurisdictional issues arising from their extra- territorial operation, the path of the Australian Bill would be much easier, not least since Europe and the US together provide the great majority of the largest TNCs.
Conclusion
States have the primary responsibility for protecting human rights and ensuring that companies operating from or in their jurisdiction do not breach those standards. However, States where human rights protection is most needed are often those least able to enforce them against TNCs that possess desired investment capital or technology. It is no answer to say simply that States should do more to force TNCs to meet human rights standards; a further modality is needed to ensure TNC compliance.
Which method will produce the highest level of innovation in, and engagement and compliance with, human rights standards? Voluntary models, whether through international, sectoral or individual codes or under informal networks such as the Global Compact offer the longer-term prospect (but not the assurance) of global norms but with the uncertain sanction of peer or public pressure. On the other hand, legally binding codes at the international or national level assure such norms but not — without significant investment in monitoring and enforcement — their enforcement. And that is to assume the presently dubious political feasibility of establishing legally binding norms governing TNC conduct. The poverty of the choice between voluntary and binding models reflects that of present institutions of global governance.
However, projects such as the Global Compact and the UN working group on TNCs offer some prospect of bridging the yawning gap between the achievable and the aspirational. They may provide the means for converting the fruits of the process of building consensus — social, business and political — on standards of TNC conduct into binding norms and enforcement mechanisms that do not depend on charismatic political and business leadership. That is not a short-term project. However, pursued with that goal, they appear to offer the best prospect for building a global system that secures corporate responsibility for human rights.
[*] Paul Redmond is Professor of Law at the University of New South Wales.email: p.redmond@unsw.edu.au© 2002 Paul Redmond
[1] Lubbe v Cape plc [2001] 1 WLR 1545.
[2] Connelly v RTZ Corporation plc [1997] UKHL 30; [1997] 3 WLR 373.
[3] Dagi v The Broken Hill Proprietary Co Ltd (No 2) [1997] VR 428.
[4] See Braithwaite, J., Regulation of Transnational Corporations: Towards a Code of Conduct For Australian Businesses Operating Offshore. A discussion paper for the International Commission of Jurists (Victorian Branch), 1997, pp.10-13.
[5] Draft Fundamental Human Rights Principles for Business Enterprises, Addendum 1, UN Doc E/CN.4/Sub.2/2002/X/Add.1, E/CN.4/Sub.2/ 2002/WG.2/WP/1/Add.1 (Draft for Discussion November 2001) <http://www1.umn.edu/humanrts/links/principles11-18-2001.htm> accessed 11/01/02; see also Draft Universal Human Rights Guidelines for Companies, Introduction, UN Doc E/CN.4/Sub.2/2001/ WG.2/WP.1, 2001 <http://www1.umn.edu/humanrts/links/ draftguidelines-intro.html> , accessed 11/01/02.
[6] Guidelines for Multinational Enterprises, in Organisation for Economic Cooperation and Development, Declaration on International Investment and Multinational Enterprises, Appendix 1 <http://www.itcilo.it/english/ actrav/telearn/global/ilo/guide/oecddec.htm> accessed 19/1/02.
[7] See <http://www.ilo.org/public/english/standards/norm/sources/ mne.htm> accessed 19/1/02.
[8] See <http://globalsullivanprinciples.org/> accessed 12/01/02.
[9] See <http://www.ictu.ie/html/ethtrading.htm> accessed 12/01/02.
[10] See <http://www.globalreporting.org/> accessed 19/01/02.
[11] See <http://www.cepaa.org/sa8000_review.htm> accessed 19/01/02.
[12] See <http://www.bsr.org/> accessed 19/01/02.
[13] Guidelines for Multinational Enterprise: Second revised decision of the OECD Council <hppt://www.itcilo.it/english/actrav/telearn/ global/ilo/guide/oecd/htm> accessed 19/01/02/; see also the Australian National Contact Point for the OECD Guidelines for Multinational Enterprises <http://www.ausncp.gov> accessed 5/11/01.
[14] Compa, L. and Hinchcliffe-Darricarrere, T., ‘Enforcing International Labour Rights through Corporate Codes of Conduct’, (1995) 33 Columbia Journal of Transnational Law 663 at 686, quoted in Bottomley, S., ‘Corporations and Human Rights’ in Bottomley, S. and Kinley, D. (eds), Commercial Law and Human Rights Ashgate, 2001, p.47; Sullivan, R. and Hogan, D., ‘The Business Case for Human Rights — the Amnesty International Perspective’, in Bottomley and Hogan, p.77.
[15] Office of the United Nations Commissioner for Human Rights, Business and Human Rights: An Update July 2001 <http://www. unhchr.ch/businesupdate.htm> accessed 11/01/02; Office of the United Nations Commissioner for Human Rights, Business and Human Rights: A Progress Report January 2000 <http://www. unhchr.ch/business.htm> accessed 11/01/02.
[16] ILO Working Party on the Social Dimensions of the Liberalisation of International Trade, 1998, quoted in McCorquodale, R., ‘Human Rights and Global Business’ in Bottomley and Kinley, above, ref 14, p.96.
[17] The Global Compact, What is it? <http://www.globalcompact.org/ un/> accessed 11/10/02.
[18] See, eg, Human Rights Watch, letter to UN Secretary-General, 28 July 2000 <http://www.hrw.org/press/2000/07/hrw-ltr-july.htm> accessed 16/01/02.
[19] Resolution on EU standards for European enterprises operating in developing countries towards a European code of conduct, 15 January 1999 <http://www.europarl.eu.int> , accessed 11/01/02.
[20] The Bill has been referred to House Committees. HR 2782, introduced in the House of Representatives 2 August 2001 <http://www.thomas. loc.gov> , accessed 16/05/02.
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