Corporate Accountability

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Corporate Accountability

• Past, Present and Future

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Why is Corporate Accountability necessary?
Voluntary systems have failed to stop corporate
abuses.
The EITI (Extractive Industries Transparency
Initiative) was founded in 2002 its birth was
announced by Tony Blair, in Johannesburg at the
world summit for sustainable development. YET
in 2008, Nihon Superior who supply Hitachi,
Kenwood, Panasonic, Pioneer and Sony (source
ft.com) use metals in their products that come
from Walikale Province in the DRC Blood
Diamond is just scratching the surface!
The ETI (Ethical Trading Industry) has existed
since 1998 and yet again, this year, Primark
(who are members of it) have hit the headlines
having sourced clothes made by children and
destitute refugees from the slums of India
certainly not getting paid a fair wage.
To make a difference, we just need to do 3
things (1) understand what exists now, (2)
figure out how to make it better, (3) demand that
our decision makers do the right thing.
Dont let the long words fool you thats all
this session is about and thats all we need to
equip us to face experts and politicians.
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Outline
To understand the strengths and limitations of
company law legislation in England Wales, on an
EU level and on an International level.   To be
familiar with the main legislative and/or
conceptual proposals for Corporate Accountability
voiced by the CORE Coalition, The ECCJ and John
Ruggie (the UN Special Representative of the
Secretary General on Human Rights and
Transnational Corporations)   To gain an
appreciation of the roles of the major decision
making bodies in the UK and EU in passing new
legislation, identifying specific obstacles to
and opportunities for the achievement our
goal.   To be able to present a persuasive
argument for the need for Corporate
Accountability legislation on international,
regional and domestic levels.
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Corporate Accountability in England and Wales
Before the Companies Act 2006
Companies had no obligation to report on the
social and environmental effects of their actions.
Companies had no legal liability for offences
committed by their overseas subsidiaries (Adams v
Cape Industries 1990) or for those committed by
unscrupulous suppliers
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Corporate Accountability in England and Wales
Following the Companies Act 2006 (Relevant
Provisions in force from Oct 2007)
Directors now have a duty to consider the
environment, employees, supply chains and
communities IF mistreating them could affect the
companys profits (s.172)
Listed companies have to produce social and
environmental reports (anomalies such as private
limited companies eg Biwater Ltd) (s.417)
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Corporate Accountability in England and Wales
Directors Duties Primark in India
At the end of June, Panorama exposed Primarks
use of child labour and destitute refugees in
India, within weeks, Primark announced plans to
appoint an NGO to improve the monitoring system
that it already had in place. An article in the
New Law Journal Uni of Hertforshire Bill
Davies argues that s.172 has forced companies in
Primarks position to act much faster than before.
Limitations of the Reforms
Whilst the legislation makes it safer for
Directors to act ethically, this is no defence
against unscrupulous shareholders who may simply
vote the director out at the next AGM for acting
ethically.
Only the company (ie the directors) can sue the
directors for breach of their duties under most
circumstances. (see below) Only the company can
be paid damages for the Directors unethical
decisions so the damages would go straight back
into the share capital!
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Corporate Accountability in England and Wales
s.261 of the Companies Act requires any
shareholder who wishes to sue a director to get
the courts permission to bring a claim against
the directors. S.263(2) tells the court how to
exercise its discretion and makes it tricky for
shareholder activists to bring an action. No
action is permitted if the majority of
shareholders have ratified (voted in favour of)
the directors action and no action permitted if
those bringing the action are not concerned with
the long term profitability of the company.
The Reporting obligations (report on anything
relevant to promoting success of company) are
built on the assumption that profit maximisation
is the only value worthy of a Directors
attention.
Reporting itself does not necessarily lead to
improved performance.e.g. The Friends of the
Earth have been trying to get Shell to stop gas
flaring in Nigeria for years. Shell admit that
the flaring goes on in their environmental
reports, and every 2/3 years set themselves a new
target date for stopping the flaring!
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Corporate Accountability in the European Union
State of Play
Despite the European Commissions expressed
desire to make Europe a pole of excellence for
CSR, the EU currently has no Corporate
Accountability legislation its response to
calls for increased Corporate Accountability
legislation has so far yielded the following
voluntary schemes
EMAS Eco Management Auditing Scheme -
voluntary, audited environmental reports
European Multi Stakeholder Model a voluntary
forum for NGOs, large companies and European
Politicians to discuss Corporate Accountability
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Worldwide Corporate Accountability
State of Play
Domestic Courts If corrupt or impotent (see
Cost of Disconnection Pray Post and the Pullout
) what then?
Companys Home Country Courts access can be
problematic - forum non conveniens
OECD NCPs are under-resourced and where
Business concerned, too often a soft touch
especially where, as in UK, they are part of a
department whose role is first and foremost, the
promotion of business. No real sanctioning power.
NHRI National Human Rights Institutions are OK
I guess but not omnipresent and dont deal with
companies that often.
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Legislative Proposals by CORE
CORE are not currently proposing amendments to
the Companies Act, rather the CORE Coalition is
monitoring the implementation of the new
Companies Act and discussing the various options
for changing the law, or establishing new bodies.
See the Corporate Abuse discussion paper
http//www.corporate-responsibility.org/module_i
mages/corporateabuse_discussionpaper.pdf
Get hold of the ACT Now! Guide to Companies Act
and start campaigning!
Watch this space for new suggestions from CORE
when they make new proposals you can be
confident that theyll be well thought through,
practical, but radical enough to make a
difference.
We have contacts with a group called ECCR, if
youre interested in investing in a company,
attending a shareholders meeting and asking
difficult questions, they are very useful people
to speak to.
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Legislative Proposals by ECCJ
Whilst as part of ECCJ, we are essentially also
campaigning for the ACT formula to be enshrined
in EU Law, the legislative proposals have merged
the Accountable and Careful parts of the
formula, and then separated them into two
proposals, each of which addresses a specific
legal context under which Transnational companies
(or groups of companies) operate.
Parent Company Liability
It is proposed that where human rights breaches
are involved, or where environmental matters are
at stake, the corporate veil should be pierced
and all parts of a company should be considered a
whole entity. There is a precedent for this in
tax law.
Supply Chain Liability
Companies should have a duty to investigate their
supply chains to ensure that human rights are
being respected and that the environment is not
being damaged throughout their sphere of
responsibility Companies should be obliged to
take all reasonable steps to prevent and mitigate
potential human rights and environmental abuses
identified.
Reporting Obligations
Companies should have to produce standardised,
comparable reports that disclose i) the
companys structure, ii) the risks of human
rights and/or environmental abuses, and iii) the
direct and indirect impacts of the companys
actions on human rights the environment in the
previous year.
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Conceptual Proposals by John Ruggie
The State has a duty to PROTECT its people from
Human Rights abuses
This should be achieved by effective legislation
and by creating a business climate that promotes
ethical business.
Transnational Companies have a duty to RESPECT
Human Rights Standards
This should be achieved by companies taking a
due diligence approach towards any potential
breaches of human rights rather than a sphere of
interest approach.
Where human rights norms have been breached,
affected groups and individuals should have
access to an effective REMEDY
Mr Ruggie sees potential in both judicial
(conventional courts and otherwise) means and in
non-judicial (ie NCPs) in providing affected
people with remedies. States should improve their
judicial capacity for dealing with claims
involving companies, and non-judicial bodies
should adhere to his minimum criteria.
(legitimate, accessible, predictable, equitable,
rights-compatible and transparent.)
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The Decision Making Bodies - UK
House of Commons
Can Bypass House of Lords after a year and one day
House of Lords
New Law
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The Decision Making Bodies - UK
House of Commons Strategic Value

• Passes new laws by simple majority vote

The House of Commons and SPEAK
The House of Commons granted us the limited
success of our amendment to the Companies Act
2006. While we wish it had gone further, we did
receive the support of 234 MPs for EDM (Early Day
Motion) 697 calling for corporate
accountability to be part of Directors Duties in
the Companies Act. We should continue to lobby
our MPs , and especially in the run up to the
general election (which must be held on or before
3rd June 2010 failing exceptional circumstances)
seek to extract big, juicy Corporate
Accountability promises from our MPs.
Opportunities
Obstacles

• We can build on the success of the Companies Act
  by calling for better reporting standards
• We can use the reports generated to demonstrate
  that far more must be done to ensure that
  business acts ethically.

• We need to build a greater consensus amongst MPs
  that companies must be regulated adequately.
• We need to develop legislative proposals that are
  genuinely workable, and therefore intellectually
  defensible.

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The Decision Making Bodies - EU
EU Parliament
Council of Ministers
EU Commission
Could you propose a new law for us please?
Commission, you will propose a new law.
Council of Ministers
European Secretariat European Scrutiny Committee
EU Parliament
Common Decision
Agreement
New Law
New Law
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The Decision Making Bodies - EU
European Parliament Its Strategic Value

• Exert moral/political pressure on the
  Commission/Council of Ministers as the only
  directly elected EU Legislative body
• Force the Commission to resign
• Amend legislation (with agreement from Council
  of Ministers)

The European Parliament and SPEAK
Broadly speaking, the EU Parliament supports our
Corporate Accountability campaign in particular
Richard Howitt MEP (Labour Party of European
Socialists) tends to come out swinging in favour
of our campaigns! Short of a vote of no
confidence in the Commission, the Parliament
appear to have done everything they can to
promote our campaign including having played
host to the Smart Regulation conference that
took place on 28th May 2008. We should continue
to lobby our MEPs so that they continue to put
pressure on the Commission and Council of
Ministers especially as both the Commission and
our MEPs will be changing with the Europe-wide
General Election in 2009.
Opportunities
Obstacles

• We are pushing at an open door at the EU
  Parliament we have some excellent
  representatives who make our case on the floor
• If the new Treaty goes through (looks unlikely
  after Irelands referendum said NO!) we may be
  able to initiate legislation without action from
  the Commission (by collecting 1,000,000 votes
  across the EU)

• We should not become complacent whilst the
  political balance of power is in our favour at
  the Parliament, we should continue to lobby, both
  to strengthen our position, and to keep the
  matter near the front of the Commissions mind.

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The Decision Making Bodies - EU
European Scrutiny Committee Its Strategic Value

• Filters the proposed items on the UKs agenda for
  discussions on the floor at the EU Parliament
  from over 1000 to 3 (a further 40 are discussed
  in standing committees)
• Monitors the activities of UK Ministers in the
  Council (through parliamentary questions and
  sometimes by questioning Ministers in person),
  and sometimes conducts general inquiries into
  legal, procedural or institutional developments
  in the EU

The ESC and SPEAK
We (and just about every other campaigning body
in the UK) are just discovering the ESC and
waking up to its potential. Whatever influence we
can have over the ESC is definitely worth having,
as it can ensure that our proposals are raised at
the Parliament, and that Ministers cannot simply
ignore our proposals without some form of
scrutiny. We should continue to lobby this
select committee of MPs to ensure that they put
pressure on our Cabinet Prime Ministers in
their capacity as members of the Council of
Ministers. The ESC will all face re-election as
will all MPs at our next General Election,
although it is probably worth noting, re-election
does not guarantee re-appointment.
Opportunities
Obstacles

• For the time being, nobody really lobbies the ESC
  it shouldnt take too much effort to get their
  attention.

• There is limited transparency in the ESCs
  activities both in narrowing the list of agenda
  items for the Parliament and in scrutinising the
  actions of our Ministers

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The Decision Making Bodies - EU
European Secretariat Its Strategic Value
- UK Ministers decide UK policy at the Council of
Ministers as part of the NSID (EU). They delegate
much of their actual work to the European
Secretariat.
The European Secretariat and SPEAK
Similarly to the ESC, I dont think that there is
a campaigning group in the UK that targets the
European Secretariat. Whatever influence we can
have over the Secretariat is definitely worth
having, as it can ensure that our proposals are
featured in the highest level policy
discussions. We should lobby this select
committee of MPs to ensure that they put pressure
on our Cabinet Ministers to act. The Secretariat
will all face re-election as will all MPs at our
next General Election, although it is probably
worth noting, re-election does not guarantee
re-appointment.
Opportunities
Obstacles

• For the time being, nobody really lobbies the
  European Secretariat it shouldnt take too much
  effort to get their attention.

• There is limited transparency in the
  Secretariats activities. (and indeed we have
  very limited knowledge of them!!)

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The Decision Making Bodies - EU
European Commission Its Strategic Value

• Is the only EU body with the right to propose new
  legislation (although the Council of Ministers
  can force it to do so)
• Acts as the executive body for legislation (a bit
  like the British Civil Service)

The Commission and SPEAK
The Commission appear to view the notion
Corporate Accountability as a political
non-starter, preferring to opt for grand
statements Pole of Excellence and voluntary
measures. Gunter Verheugens CSR man, Jiry
Plecity told us that hes not convinced that
most Europeans are in favour of compulsory
corporate accountability. We should continue to
lobby the Commission. We need to draw attention
to the fact that Corporate Accountability is a
far more popular idea than the Commission have so
far been prepared to admit. In the mid term, we
should make it clear to both the Council of
Ministers and our MEPs that we want a progressive
Commission that is prepared to regulate in the
sphere of Corporate Accountability to be selected
in 2009. However, given the shift to the right
politically that appears to be taking place
throughout Europe at the moment, this may prove
tricky.
Opportunities
Obstacles

• They have effectively thrown down the gauntlet
  prove that your idea is popular
• The Commission is changing soon - 2009

• There is no guarantee that even if we prove that
  Corporate Accountability is popular, that the
  Commission will act

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Making the Case for Legal Reform
No company wants to shoot itself in the foot
consumer outrage and lost business is punishment
enough for unethical businesses.

• Response Consumer Pressure Doesnt Work
• Transnational Corporations and their behaviour
  have been under the spotlight since McLibel in
  the 1990s since then, McDonalds, Nike, Shell,
  Primark and many more companies have felt the
  full force of market-based pressure from the
  general public
• Whilst this pressure has in one-off scandals hit
  such Transnational's where it hurts - on their
  balance sheets, it has not achieved its objective
  of ensuring that corporations uniformly respect
  human rights, or the environment. Its positives
  have been both hit-and-miss and transient.

This is just too complex a matter to legislate
on, all you will manage to do is create a whole
new pile of paperwork!

• Response Where there is (political) will, there
  is a way
• It is not enough to dismiss Corporate
  Accountability as too sophisticated an issue to
  regulate where transnational mergers and
  acquisitions take place, where stocks and
  currencies are traded, and where corporation tax
  is concerned our legislature has demonstrated
  its creativity and ability to legislate in
  complicated grey areas and in matters that even
  highly educated members of the public do not
  understand. Reticence to pass law in this sphere
  is not primarily a question of technical
  feasibility, but rather one of political will.

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Making the Case for Reform
Wont this cost business too much?

• Response Business has NO RIGHT to call
  Corporate Accountability a cost
• The changes in business practices brought about
  by effective Corporate Accountability legislation
  may well, in the short term at least, make
  Business less profitable than they currently are.
  This change is not something that Business should
  be allowed to frame as a cost. The basic
  principle we seek to establish is that wherever
  they operate, companies should do no harm. The
  cost of cleaning polluted land/water, or of
  making restitution to a family violently driven
  from their home is the least that a business that
  is implicated in either situation can do.

Your proposals are too harsh against directors
you will discourage them from ever taking the job!

• Responses
• Directors are already significantly at risk of
  extradition and imprisonment for fraud,
  increasingly for Corporate Manslaughter (in the
  UK) this argument has never stopped us from
  defending our own citizens or our environment.
  Shouldnt our business show the same care to the
  rest of the world?
• These measures will discourage certain types of
  director from taking the job. I would argue that
  the sort of director who would like to be able to
  shrug off his responsibilities to the communities
  and the environment that his business impacts, is
  precisely the sort of director that we should be
  discouraging from becoming a director.