InternationalCorporateAccountabilityRoundtable

DefiningCompliance:WhyRecentDevelopmentsinLawandPolicyShouldMattertotheCorporateAccountability

Movement

ByMarkB.Taylor

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WhatistheInternationalCorporateAccountabilityRoundtable?

TheInternationalCorporateAccountabilityRoundtable(ICAR)isacoalitionofleadinghumanrightsorganizationsincludingAmnestyInternational,EarthRightsInternational,GlobalWitness,Human

RightsFirstandHumanRightsWatch.

ICARharnessesthepowerofthehumanrightscommunitytoidentifyandpromoterobustframeworksforcorporateaccountability,

strengthencurrentmeasuresanddefendexistinglaws,policiesandlegalprecedents.

Formoreinformationaboutourworkandourcampaigns,visitwww.accountabilityroundtable.org,oremailICARCoordinator

AmolMehraatamol@accountabilityroundtable.org.

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DefiningCompliance:WhyRecentDevelopmentsinLawandPolicyShouldMattertotheCorporateAccountability

Movement

ByMarkB.Taylor

MarkB.TaylorisaSeniorResearcherattheFafoInstituteforAppliedInternationalStudies,Oslo.Inaddition,heisalsoaSeniorAdvisortoGlobalWitness'EndingImpunitycampaignandFafo’srepresentativeontheJustJobsNetworkledbytheCenterforAmericanProgress.MarkisEditorofthelegalanalysisblog‘LawsofRule’(www.lawsofrule.net)andthe'RedFlags'initiative(www.redlfags.info),aswellasanoccasionalcommentatorforAlJazeeraEnglishtelevisiononinternationallaw.AformerManagingDirectorofFafoAIS,Markworksprimarilyonregulatoryandpolicyresponsestoviolenceandconflict,inparticularthewaysinwhichlawisappliedtonon‐stateactors(armedgroups,warlords,business).Inaddition,Markhascoveredsuchissuesasthesociologyofarmedgroups,thereformofUNpeaceoperationsandinstitutionalprotectionsforhumanrights.Thecorporateaccountabilitymovementhaspioneeredtheattempttoapplyexistinglawstocrimesandharmscausedbybusinessentities.Attemptstoestablishcorporateaccountabilitythroughlitigationhavehadbothsuccessesandset‐backs.Thepushtoendimpunitythroughthecourtshasspread,becomeaglobalphenomenonandhasgainedmomentum.Althoughtherearemanyobstaclestoaccesstojusticeforvictimsofbusiness‐relatedhumanrights

abuse,iattemptstoendimpunityarecertaintocontinue.Inthepasttwelvemonths,therehavebeendevelopmentsinlawandpolicythatarerelevantforthosepursuinganaccountabilityagenda.ThesedevelopmentshaveoccurredbothintheU.S.andgloballyandareinpartaresultoftheworkofthecorporateaccountabilitymovement.Takentogethertheyreflectanopportunityforimprovedcorporateaccountabilityandgreaterclarityandpredictabilityofregulation.

DueDiligenceForyears,thedebatehasrumbledonoverthenatureofbusinesshumanrightsobligations.Manybusinesses,NGOs,multilateralorganizationsandgovernmentsmadeclaims,butithadnotbeenatallclearwhathumanrightsobligationsbusinesseshad,neitherinprinciplenorinpractice.Forexample,formanywithaCorporateSocialResponsibility(CSR)approach,respectinghumanrightswaspartofeverythingthatwas'beyondcompliance'withthelaw.Thisviewneglectedthefactthatthedefinition

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ofcompliancewithhumanrightsresponsibilities,includingunderwhatjurisdictiontheseweretobejudged,waspreciselytheproblem.Inthepasttwelvemonths,inaremarkablebutlong‐overduespurtofinter‐governmentalconsensusandcoherence,thequestionofwhatisrequiredofbusinesseshasbeenansweredintheformofsignificantnationalandinternationallegislativeinitiatives.IntheUnitedStates,yearsofcampaigningonthecommercialaspectsofthewarsinDemocraticRepublicofCongo(DRC)ledtotheadoptionin2010oftheconflictmineralsprovision(1502)oftheDodd‐FrankWallStreetReformAct.TheActrequirescompanieswhoseproductsrelyoncertainminerals–tantalum,tin,tungsten(thethreeTs)andgold–tofiledisclosuresofthecountryoforiginofsuchmineralsintheirannualreportingtotheSecuritiesandExchangeCommission(Commission).Wheretheoriginofthosemineralsisnotknown,orwherethosemineralsoriginatefromtheDRCorcertainneighboringcountries,thecompanywouldthenberequiredtofileanadditionalreport–a“ConflictMineralsReport”–explainingwhatduediligenceithasexercisedonitssupplychain.TheCommissionisexpectedtopromulgateregulationslaterin2011thatwillmakeclearthestandardagainstwhichbusinessduediligencewillhavetobeconductedinordertobeincompliancewithsection1502.TheCommissionhasasignificantandcoherentbodyofinternationalsoft‐law“legislation”todrawon.In2009‐2011,theOECDshepherdedthe"DueDiligenceGuidanceforResponsibleSupplyChainManagementofMineralsforConflict

AffectedandHighRiskAreas,"adetaileddescriptionofduediligenceforthemineralsectoroperatinginDRC.ThisGuidancewasspecifictothemineralsectorsrelevanttotheDRCconflictandfocusedontheproblemofconflictfinancingandgravehumanrightsabusesfoundintheeasternpartofthatcountry,howeveritssignificanceliesinthatitisperhapsthefirstsoft‐lawdescriptionofwhathumanrightsduediligencewouldlooklikeatthesectororindustrylevel.TheGuidancewasendorsedbytheInternationalCommissionontheGreatLakesRegion(ICGLR)inearly2011andsignedoffonbytheOECDCouncilofMinistersintheSpring.Atthesamemeeting,theCouncilalsoapprovedtherevisedGuidelinesforMultinationalEnterprises,whichforthefirsttimeincludedasignificantamountofhumanrightscontent.TheseGuidelines,too,centeredontheconceptofduediligencebybusinessasthebasisforensuringrespectforhumanrights.ThedraftersofthetwoOECDdocumentscoordinatedtheirworkwiththeframeworkdevelopedbySpecialRepresentativeoftheUNSecretary‐General(SRSG)onBusinessandHumanRights,ProfessorJohnRuggie.Ruggieformulatedthe“Protect,RespectandRemedy”Framework(2008)inwhichheproposedthatabusiness'sresponsibilityforhumanrightsarisesoutofitsactivitiesandrelationships(itsimpacts)andthatitsabilitytorespecthumanrightsdependsuponitsimplementationofduediligence.TheUNHumanRightsCouncil(HRC)welcomedtheFrameworkandinJune2011,endorsedtheGuidingPrinciples,whichareintendedasasoft‐lawinstrumenttoimplementtheFramework.

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TheGuidingPrinciplesdescribeabalanceofdutiesinwhichStates’dutiestoprotecthumanrights–thefirst“pillar”oftheFramework–makethemultimatelyresponsibleforhumanrights,includingprovidingmostformsofremedy(thelatterseparatedoutasathethird“pillar”oftheFramework).Businessresponsibilitieswerenestledwithinthisoverarchingstatedutyasthesecond“pillar.”TheGuidingPrinciplesestablishedclearlythatStates’dutiesincludetheneedtocreatelegallybindingruleswithrespecttohumanrightsandbusiness,whereStatesseefittodosowithintheirjurisdiction.iiItispossiblethatDodd‐Frank'sconflictmineralsprovisionswillbethefirstexampleofaStatecreatingbindingruleswithrespecttohumanrightsduediligence.MuchdependsonwhethertheCommissionintegratesthehumanrightsstandardssuggestedbytheSRSGortheOECDGuidanceandGuidelines.Butthefactremainsthatin2011aninternationalconsensushasemergedthatduediligenceitselfisaregulatoryapproachthatgovernmentscanlivewith.Thatbeingsaid,itremainstobeseenwhethergovernmentswillacttocodifyduediligenceinregulation.Legallymandatoryhumanrightsduediligencerequirementsatthenationallevelwouldgoalongwaytowardclarifyingexpectationsforbothvictimsofbusiness‐relatedhumanrightsabuseandbusinessesthemselves.Bothwouldgainintermsoftheclarityastounacceptablebehavior,thepredictabilityofbindinglawandtheoptionsavailableforremedy.Thereareanumberofquestionsstilltobeanswered,butalreadythereareseveral

indicationsthatthereisvalueinalegislativeapproachtoduediligence.First,theconceptofduediligencecomesfromcommerciallaw,thatislawapplicabletobusinessentitiesandbusinessactivities.TheUSSecuritiesActof1933isonekeyexample,whereinduediligenceonsecuritiesisadefenseavailabletobrokersshouldtheyfaceclaimsforcompensationbypurchasersofthosesecurities.Similarly,implementationoftheForeignCorruptPracticesAct(FCPA)alsoallowsaduediligencedefenseforcompaniesfacedwithallegationsofactsofbribery.Becauseduediligencecomesfromlaw,andfromlawdirectlyapplicabletobusinessactivities/entities,itsuseindefiningresponsibilitiesofbusinessforhumanrightsavoidstheusualgeneralchallengethathumanrightslawisonlyapplicabletoStatesandissomehownotapplicabletobusinessactivities.Italsoimpliesthatduediligenceisalegalconceptthathasstoodthetestoftimeandbusinesspracticeandinthatsenseisnotan"idiosyncratic"iiiorunreasonabledemandforcitizensandtheirgovernmentstomakeofbusiness.Second,duediligencereflectsthetheoryofattributionforhumanrightsresponsibilitiesnowrecognizedininternationalsoft‐law.Previously,akeyproblemwiththeattributiontobusinessofresponsibilitiesforhumanrightshadbeenindefiningfromwhattheseresponsibilitiesarose.Notionssuchasabusiness’s“sphereofinfluence”simplydidnotworkasabasisforculpabilityorresponsibilityunderthelaw.ButembeddedintheGuidingPrinciples,theOECDGuidanceandGuidelines,andDodd‐Frankistheideathatbusinessresponsibilityarisesnotfromabusiness’s“sphereofinfluence,”butfromitsbusinessactivitiesandrelationships.Thisisintuitivetomost

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peopleasthebasisforethicalresponsibility(weareresponsibleforouractions),justasitisunderbothcivilandcriminallawineveryjurisdiction.Inshort,thereisasoundbasisforlawandpolicycoordinationacrossborders,pre‐emptingtheclaimthatdomesticlegislationwillputfirmsatadisadvantage.Third,duediligenceshiftsthelegalburdenawayfromvictims—whereitpresentlyrestsinmostcivillitigation,forexample–andontothebusinessentity.Thisisnotanunreasonableoronerousburden.Itisnotunreasonablebecauseatissuearetheactionsofbusinessesortheiragents.Nomore,noless.Itisnotonerousbecauseduediligenceisbydefinitiondelimitedbytherangeofactivitiesandrelationshipsinwhichthebusinessisinvolvedanddoesnotextendtotheentireuniverseofpotentialhumanrightsabusewithinaparticularjurisdiction.Finally,itisentirelyappropriatetotheproblem:itistheseactivitiesandrelationshipsthatthebusinessknowsbetterthananyoneoutsidethecompany.Putanotherway,isitreasonabletoplacethelargestburdenofproofonthoseoutsidethecompanywhoarelesslikelytoknowallactionstakenbythecompanyortohaveeasyaccesstotherelevantinformation?Finally,someformoflegallymandatoryhumanrightsduediligencerequirementwouldbebestpursuedatthenationallevel.Thisisbecausetheregulationofmarket‐basedactivityisanationalfunction,andbecausehumanrightsprotectionisthedutyofStates.ThemultilateralworktocoordinatethebasicpolicyelementshasbeenputinplaceintheformoftheGuidingPrinciplesanditisuptoStatestoadoptandadaptthePrinciplestotheirowneconomiesandlaw.Oneoftherealitiesofhowa

companyactuallyconductsduediligenceisthat,whilethebasicmethodisadaptabletoallindustries,onesizedoesnotfitallsectors.Duediligencewilllookslightlydifferentdependingonthesectorinvolved.Inaddition,differentcountrieshavedifferentlegalandregulatorytraditions.Businesscanandshouldbegintoconductduediligencetoensuretheyarerespectinghumanrightsnow.Statescanandshouldbegintoconsiderwhatlegislationmaybenecessarynow.Andtogettheprocessesgoing,campaignerswillneedtofocusontheparticularitiesofgeneratingpoliticalwillatthedomesticlevel,whilekeepingtheirdemandscoordinatedinternationally.

TheChallengeofDisclosurePromotingthepracticeofduediligence,evencampaigningtogetitcodifiedasamandatoryrequirement,willbelessthanusefulifthereisnotsignificantlegislativechangewithrespecttobusinessresponsibilitiesfordisclosure.Todate,thishasoccurredintheUnitedStatesintheformoftheDodd‐Frankprovisionsonconflictminerals(1502)andonpaymentsbyextractiveindustryentitiestogovernments(1504).Bothprovisionsareprimarilyaboutdisclosure,thatis,throughdisclosuretheyaimtoincreasetransparencyofbusinessbehaviorwithrespecttomineralextractionandpaymentstogovernment.Thelogicofthisissimpleandnotnew:disclosurepullsbackthecurtainofcommercialsecrecybehindwhichharmfulbehaviormaytakeplaceandinsodoingenablestheregulatoryinfluenceoncompaniesofbothmarketsandcivilsociety.

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ItisimportanttoemphasizethatdisclosuretotheSECisnotthesameasCSRorsustainabilityreporting.Reportingalternatives,suchastheGlobalReportingInitiative,orstandardssuchasISO26000,aredesignedtoreassuremarketsthatabusinessismeetingavoluntarystandard.Thiswillrespondtosomeextenttothedemandsofthoseinvestorsandshareholdersinterestedinseeingthatcompaniesinwhichtheyinvesthavehumanrightspoliciesandduediligenceproceduresinplace.Itwillserveasasignaltothemarketsofloweredrisksthataparticularbusinessisviolatinghumanrights.ButtheseformsofCSRreportingareunlikelytotellusmuchwithregardtowhererightsareviolatedor,forthatmatter,wherebusinesseshaveattemptedtopreventormitigatethoseabuses.Whiletheyareastepintherightdirection,suchreportingwillnotprovidetheleveloftransparencynecessaryforexternaloversightormonitoringofcompliancewithhumanrightsstandardsunderaduediligenceapproach.Suchreportingdoeslittletorespondtoneedsofvictimsofhumanrightsabuse.Nordoesitaddresstherisksfacedbycompanieswhowillbeincreasinglyunderpressuretoissueareportthatincludethebadnewsaswellasthegood,e.g.whereviolationswereencounteredandhowtheyweredealtwith.Afewmulti‐stakeholderinitiatives–forexample,theFairLaborAssociation(FLA)‐havesoughttocreateaspaceinwhichthebadnewscanbeairedanddealtwith.Theobjectivehasbeentousetransparencybytheparticipatingbusinessesforthebenefitoftheworkerswhomanufacturetheirproducts.Significantly,theFLAwasoriginallyconvenedunderagovernmentumbrella,providingapublicpolicyglosstoanotherwisebusinessandlaborfocused

initiative.TheFLAhasnotbeenwithoutcontroversy,butbecausetheFLAwasoneofthefirstoutoftheblocks,thesuccessesandfailuresoftheFLAwithrespecttodisclosureandmonitoringwillhaveimportantlessonsforthedesignofduediligencedisclosure.Theexistingincentivestructureforbusinessmeansthatfewbusinesseswillwanttopublishinformationabouttheirviolationsofhumanrights.Mostcompaniesdonotseesuchinformationasapartofbuildingastrongbrand.Thedisclosureprovisionsin1502and1504(aswellasin1503onmining)areamanifestationofthefactthatapublicpolicysolutionintheformoflegislationisnecessarytoovercomethechallengesthatcommercialsecrecy,materiality,andalltheassociatedmarket‐basedrisksoftransparencyposetotheneedforoversight.Thesebasiclegalandcommercialchallengesmeanthatnationallegislationisneeded,notonlyonconflictmineralsorextractiveindustrypayments,andnotonlyintheUnitedStates.Onitsown,themarketwillnotdeliveroversightsufficientfortheprotectionofhumanrights,justasithasnotdeliveredsufficientoversightwithrespecttoconflictminerals,minesafety,orextractiveindustrypayments.Finally,giventherealitiesofcommercialsecrecyandmarket‐basedcalculationsofrisk,itisworthconsideringwhetherastatutoryrightofaccesstoinformationaboutthebusinesssector’sparticipationinspecifichumanrightsbreaches‐and/ortheirduediligencewithrespecttohumanrights–isanimportantandnecessarysupplementtothestandardizedCSRreportingmanybusinessesarenowstartingtointroduce.Justaslegislationpermitscitizenstodemandinformationfromtheir

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governmentsonacase‐by‐casebasis,suchlegislationwouldpermitvictimsofhumanrightsviolationstoseekdisclosurefromabusinessabouttheduediligence,includingremedialsteps,takeninrelationtoaharmtheyhavesuffered.Thisisnottoimputethedutiesofgovernmentstobusiness.Itissimplytorecognizetheveryrealimbalancesinpowerandresourcesonthesequestionsandtosuggestonemechanismwhichmighthelpleveltheplayingfieldbetweencorporationsandcitizens.

ConclusionThereisanemergingnormativeconsensusaroundduediligenceasthefocusofabusiness'responsibilitytorespecthumanrightsanddisclosurerequirementstoensureaccountability.ThisisfindingpurchaseindomesticlegislationintheUnitedStates,theworld'slargesteconomy.Atitscoreisthenotionthatforabusinesstorespecthumanrightsrequiresittotakeactiontoensureitisnotinfringingontherightsofothers,inotherwordsthatitshoulddonoharm.Butduediligencebycompaniesismorelikelytotakeplacewithinalegislativeframeworkprovidedbygovernments.Business,inshort,shoulddonoharmandgovernmentsneedtostepupwithlegislationtoensurethathappens.Butnewlawsdonotemergefromavacuum.Businesscompliancewitharule,andStateenforcementofthatrule,arefunctionsofalargerregulatorydynamicthatisdrivenbysocialandmarketforces.Withouteffectivecampaigning,theopportunityaffordedby

thepresentconvergenceofnormativeconsensusaroundduediligencewillbelost.Morespecifically,acampaignthatcreatesandmobilizesconstituenciesbehindtheneedforbusinessaccountabilityforhumanrightsabuseshouldaimnotonlytoreformthelaw,butatthesametimeshouldorganizetoensurethesustainabilityofthereformsandtheirdesiredoutcome.Suchacampaignwillhavetobuildsupportfortheprincipleobjective,bothintheUnitedStatesandinsupportofalliesabroad,andbuildintothatobjectivetheorganizationofthelonger‐termbaseorconstituencywhichwillcreatethespace/willforcourtsandprosecutorstoactonthelawspassedintheirrespectivejurisdictions:forlawstobepassedisonething,tobeenforcedisanother,andtorepelattemptsatrepealsomethingelse.Todoallofthisagainsttheinevitableoppositionofmulti‐nationalcorporationsdemandsasimpleandcleardemand,frontedbywell‐organizedandstrategiccampaigns.Forallofthesereasons,ifICARdidnotalreadyexistitwouldhavetobeinvented.Amandatoryobligationtorespecthumanrights,andtoconductduediligenceinimplementingthatobligation,wouldseemasensibleplacetostart.

iFafo,AmnestyInternational,Noref:(2010)“OvercomingObstaclestoJustice.ImprovingAccesstoJudicialRemediesforBusinessInvolvementinGraveHumanRightsAbuses”Taylor,MarkB.,RobertC.ThompsonandAnitaRamasastry.Fafo‐report2010:21iiTaylor,MarkB.(2011)“TheRuggieFramework:Polycentricregulationandtheimplicationsforcorporatesocialresponsibility”Etikkipraksis.NordicJournalofAppliedEthics,5(1),pp.9–30.iiiSteinhardt,R.(2005)CorporateResponsibilityandtheInternationalLawofHumanRights:TheNewLexMercatoria.InNon‐StateActorsandHumanRights,ed.PhilipAlston,pp.178–226.Oxford:OxfordUniversityPress.