IN WHOSE INTERESTS SHOULD CORPORATIONS BE GOVERNED? In whose interests should corporations be governed; to whom do directors have duties ? This issue has been largely addressed in the preceding discussion – and is hence, very closely tied to how once conceptualizes the corporation. In short, if one views the corporation as either (i) resulting from the aggregate consensual agreement among its members, (ii) as a natural creation of private initiative and market forces, or (iii) as a nexus of contracts – then the private interests of the members/shareholders will take priority If, on the other hand, if one views the corporation as (i) an artificial entity created by the state or (ii) as a real/natural entity which, like other natural persons, should enjoy the freedom to act as a socially responsible citizen – then the interests of the corporation and the wider public interest will be given greater emphasis
IN WHOSE INTERESTS SHOULD CORPORATIONS BE GOVERNED? In whose interests should corporations be governed; to whom do directors have duties ? So - opinion on this issue can (rather crudely) be divided into two camps: - Those who believe shareholders should be accorded priority (and most often associated with the nexus of contact/agency theory approach) - Those who believe that a firms other stakeholders should be of equal concern in the governance of the corporation (most often associated with what is referred to as the stakeholder approach).
IN WHOSE INTERESTS SHOULD CORPORATIONS BE GOVERNED In addition to the conceptions of the corporation outlined previously , the shareholder/stakeholder debate is reflected in both different philosophical and cultural traditions There is a rich academic literature, informed by work in ethics and political philosophy, which argues that a range of stakeholders have certain rights vis-à-vis the corporation Further, classification of international corporate governance systems often make the distinction between Anglo-American shareholder orientated governance systems(US/UK) and other governance systems which exhibit stakeholder characteristics (Germany, Japan, Scandinavia)
CORPORATE GOVERNANCE – IN DIFFERENT CONTEXTS Stakeholder (Germany/Japan) Shareholder (Anglo-American) • • Consensus driven Competition driven • • Legal framework emphasis social role of Legal framework emphasises companies shareholders • • Longer term strategy Shorter term strategy • • Greater reliance on debt Greater reliance on equity • • Stakeholders/ company focus Shareholder primacy • • Co-determination/ worker councils No employee involvement • • Dispersed shareholding structure Concentrated ownership & control • Strong blockholders /weak “ • dispersed Strong managers weak owners owners ”
Part 2 – Critique of the shareholder primacy model
CORPORATE GOVERNANCE & SHAREHOLDER PRIMACY It has been argued that governance systems throughout the world are converging on a shareholder approach But why … ? What is the rationale for ascribing priority to shareholders when considering whose interests a corporation should be run?
TYPICAL ARGUMENTS FOR SHAREHOLDER PRIMACY Shareholders OWN the company Shareholders are the PROVIDERS OF CAPITAL Shareholders are the residual BEARERS OF RISK
TYPICAL ARGUMENTS FOR SHAREHOLDER PRIMACY Ownership Goyder (1951, p.23) “ A company is self-owning ” , the idea that it belongs to the shareholders is a “ fiction ” . As a separate legal personality it “ is incapable of being owned ” Deakin (2012, p.355), “ From a legal perspective, shareholders own neither the “ firm ” nor the “ corporation ” nor its assets ” . ’
TYPICAL ARGUMENTS FOR SHAREHOLDER PRIMACY Ownership The assets are owned by the separate legal entity – the corporation. “ The corporation, in turn, cannot be owned as a “ thing ” precisely because … it is a person - a legal subject - in its own right ” (Deakin, 2012, p.356) . Shareholders have certain rights – such voice and voting rights to rights in relation to distributions – by virtue of their ownership of shares However, “ these rights do not constitute ownership ” (Goyder, 1951, p.24-25) ’
TYPICAL ARGUMENTS FOR SHAREHOLDER PRIMACY Providers of capital? McSweeney (2008) notes that since the late 1920s, ‘ corporate retentions overall in the US have never been less than 66 per cent of all sources of funding over any five or six year period ’ , while ‘ during the period 1982 – 7 shares provided only 3.1 per cent of net sources of funds for the 100 largest US manufacturing companies ’ . Mumford (2000, p.5-6) notes, ‘ much of [a company ’ s] capital is in effect self-owned … much of its capital comes from its own earnings, and that most of the ‘ reserves ’ represent the proceeds of its own endeavours ’ .
TYPICAL ARGUMENTS FOR SHAREHOLDER PRIMACY Providers of capital? Mayer (2013), notes ‘ The net amount of equity capital raised from stock markets in the last few decades of the 20 th century was negative in both the UK and the US ’ The value of acquisitions was around $3 trillion in 2009, while new issue of shares raised around $700 billion. Between 2005-2007, net new equity issued was negative - companies actually bought back more than they sold (Mayer, 2013). For Ireland (2001: 163), the assumption that ‘ shareholders actually give something to corporations ’ is a ‘ mythology ’ - rather they simply place bets on their future profitability
BiG Co. Initial Public S Offering S S BiG Co . S S S S S
Subsequent trading of S BiG Co. shares S S BiG Co . S S S S S
TYPICAL ARGUMENTS FOR SHAREHOLDER PRIMACY Residual Bearers of Risk Goyder (1951, p.17) a shareholder ’ s risk is limited and hence ‘ known in advance ’ , whereby the worker ’ s risk is often ‘ unknown and unforeseeable ’ ’ As Mumford (2000, p. 6) notes: the argument that the shareholders are the principal risk-bearers accords ill with the observable facts. Employees, managers, suppliers and customers are also likely to suffer alongside debt-holders when a company collapses, and some of these groups may enjoy less portfolio diversification than the average shareholder Collison et al (2011, p.17), ‘ the liquidity of stock markets allows shares to be traded and for shareholders to diversify and spread their risk – again, options not readily available to employees and other stakeholders ’
SO … ON WHAT OTHER GROUNDS MIGHT SHAREHOLDER PRIMACY BE ADVOCATED? John Parkinson (1993) provides a useful summary of the normative assumptions that underpin the nexus of contracts/agency theory approach. According to Parkinson – these assumptions are as follows: • Society's wealth is maximised when production takes place at lowest possible costs • A company committed to maximise profits will seek to minimise their costs • The residual rights of shareholders create appropriate incentive for them to exercise disciplinary function
SO … ON WHAT OTHER GROUNDS MIGHT SHAREHOLDER PRIMACY BE ADVOCATED? Lets revisit some aspects of the nexus of contract/agency theory approach … Work in this tradition often draws (perhaps inappropriately) on Berle and Means (1932) Demsetz (1967) and Alchian (1969) - The residual rights of the shareholders create an appropriate incentive for them to activate the relevant disciplinary mechanisms According to this residual rights perspective, shareholders play a key disciplinary role in ensuring that profit maximisation is pursued, acting as a countervailing power to management and thus ensuring society ’ s welfare is optimised
SO … ON WHAT OTHER GROUNDS MIGHT SHAREHOLDER PRIMACY BE ADVOCATED? Jensen and Meckling (1976) and Fama (1980) The notion of an ‘ agency relationship ’ was introduced to describe the relationship between shareholder (principal) and manager (agent), with the assumption that the ‘ principal retains the power to control and direct the activities of the agent ’ In order to reduce ‘ agency costs ’ (i.e. the loss to shareholders resulting from management decisions which are not in the shareholders ’ financial interest) shareholders will seek to align managers ’ interests with those of the shareholders through monitoring and incentive mechanisms
SO … ON WHAT OTHER GROUNDS MIGHT SHAREHOLDER PRIMACY BE ADVOCATED? This position is underpinned by a certain a moral perspective – in particular, Utilitarianism i.e. a system of corporate governance which prioritises the interests of shareholders leads to the “ maximization of society ’ s total wealth ” (Parkinson 1993, p.41).
How well does this claim hold up?
SHAREHOLDER VALUE & INEQUALITY Existing research highlights that greater disparities of wealth are evident in Anglo- American countries where shareholder value is, arguably, most pronounced (Aglietta and Reberioux, 2005; Froud et al, 2006; Harvey, 2005; Wilkinson and Pickett, 2009). One reason cited in the literature is the increase in earnings achieved by company executives as a result of agency-theory-informed incentive schemes based on a maximisation of shareholder wealth objective. As Froud et al. (2006: 58) note, the ratio between the earnings of ordinary workers and CEOs in the US grew from 50 times in 1980 to 281 times in 2002 (currently 271:1)
SHAREHOLDER VALUE & INEQUALITY In linking inequality to the emergence of the emphasis on shareholder primacy, Dore (2008, p 1107) notes that ‘ measures of income inequality are rising … faster in the most ‘ financialized ’ Anglo-Saxon economies ’ , adding: ‘ median incomes stagnate while the top percentile, and especially the top permille make spectacular gains ’ . Moreover, the top earners ‘ are not traditional rentiers … with the highest incomes going to those in financial services at the expense of everyone else ’ (Dore 2008, p. 1107).
SHAREHOLDER VALUE & INEQUALITY Increase in the capital share and reduction in the labour share of GDP (Dore, 2008, p.1108) And, an increase of highly paid intermediaries, such as hedge fund managers, investment bankers, lawyers and accountants which has created “ a new stratum of working rich ” (Froud et al. 2006). For McSweeney (2008, p.66) by exacerbating inequality, the priority ascribed to shareholders can be linked to “ cardiovascular disease and cancer ” “ , infant mortality and life expectancy, height, mental breakdown, tooth decay and morbidity ” .
LEGAL ORIGIN, INCOME INEQUALITY AND SOCIAL HEALTH Collison et al. (2011) developed a critique of La Porta et al.'s body of work by considering the link between legal origin and social health In their early papers LaPorta et al. (1997,1998) developed the proposition that stock market size and consequent economic development were promoted by a legal system which protected the interests of shareholders Collison et al. (2011) find that common law countries (i.e. those with the greater legal protection for shareholders) have the worst social outcomes
LEGAL ORIGIN, INCOME INEQUALITY AND SOCIAL HEALTH The significance of La Potra et al. Proponents of an agency theory approach Academic 'rock stars' (Aguilera and Williams, 2009, p.1424) La Porta et al. ’ s ‘ ideas have been adopted in international development initiatives by the World Bank as the basis for one set of its policy prescriptions for economic development in emerging markets ’ (Aguilera and Williams, 2009, p.1424; see also Cioffi, 2009)
LEGAL ORIGIN, INCOME INEQUALITY AND SOCIAL HEALTH Further, ‘ their ideas are indicative of and have supported, the virtually unrelenting pressure on European countries to adopt more life ’ market-dominated systems for organizing their economic (Aguilera and Williams, 2009, p.1424) However, 'the premise that shareholder capitalism enhances social welfare has not been seriously examined as an empirical matter by leading corporate law scholars in the United States. Rather, it has been accepted as an article of faith or has been demonstrated by virtue of high share prices' (Williams and Zumbansen, 2011, p.6)
Source: Collison, D.J., Cross, S., Ferguson, J., Power, D.M. & Stevenson, L.A. (2012) ‘ Legal Determinants of External Finance Revisited: The Inverse Relationship between Investor Protection and Societal Well-being ’ Journal of Business Ethics Vol.108, No.3, pp 393-410.
Inequality in the US
OTHER CRITICISMS OF SHAREHOLDER PRIMACY Lazonick and O ’ Sullivan (2000,p.13) point out, US corporate strategy was historically orientated towards the retention of earnings - which were re-invested in the firm. However, with the growing market pressure that accompanied the pursuit of shareholder value, corporate strategy shifted ‘ to one of downsizing of corporate labour forces and distribution of corporate earnings to shareholders ’ According to Dobbin and Zorn (2005: 185) this increasing emphasis on shareholder value provided justification for hostile takeovers because it ‘ focused corporate attention on stock price ’ . As a consequence of these increasing market pressures, ‘ executives and CFOs responded by trying to game the numbers ’ through the use of ‘ accounting gimmicks ’ (Dobbin and Zorn 2005: 193; see also Levitt 1998).
OTHER CRITICISMS OF SHAREHOLDER PRIMACY Taking Enron as a case in point, Aglietta and Reberioux (2005: 227) illustrate how ‘ shareholder sovereignty ’ leads to inappropriate corporate strategy and accounting fraud. In particular, three accounting ‘ policies ’ are noted in the Enron case: (i) off-balance sheet accounting (ii) abuse of fair value accounting, and (iii) manipulation of the income statement. Aglietta and Reberioux (2005: 232, emphasis added), argue that this case exemplifies a ‘ systemic crisis ’ engendered by an emphasis on shareholder value and the predominance of financial markets (see also Froud et al. 2004).
Part 3 – Some alternative models of corporate governance and the firm
BERLE AND MEANS (1932) THE MODERN CORPORATION AND PRIVATE PROPERTY 1930 ’ s – Famous exchange between Adolf A. Berle Jr and E. Merrick Dodd Jr In this exchange, Berle argued ‘ that the management of a corporation could only be held accountable to shareholders... whereas Dodd held that corporations were accountable to both the society in which they operated and their shareholders ’ (Macintosh, 1999, p.139; see also, Weiner, 1964). In many respects, the solutions proposed by these protagonists can be viewed as a precursor to the shareholder/stakeholder debate which permeates the literature today.
BERLE AND MEANS (1932) THE MODERN CORPORATION AND PRIVATE PROPERTY Concerned with the unaccountability of management, Berle argued that the solution lay in the strengthening of the fiduciary duties of directors to shareholders. However, as Ireland (2001, p.149) argues, Berle's position was not motivated by ‘ reasons of principle ’ but rather, ‘ because he could see no other way of preventing managers from feathering their own nests ’ . As Macintosh (1999, p.146) and Ireland (2001, p.150) point out, Berle ’ s position within this debate shifted and he began to acknowledge the ‘ validity of Dodd ’ s views ’ .
BERLE AND MEANS (1932) THE MODERN CORPORATION AND PRIVATE PROPERTY The concluding chapter of this text ‘ quite explicitly ’ asserts the interests of the community above the ‘ passive property ’ rights of the rentier. For example, Berle and Means (1932, p.313) state: It seems almost essential if the corporate system is to survive, - that the ‘ control ’ of the great corporations should develop into a purely neutral technocracy, balancing a variety of claims by various groups in the community and assigning to each a portion of the income stream on the basis of public policy rather than private cupidity .
BERLE AND MEANS (1932) THE MODERN CORPORATION AND PRIVATE PROPERTY Neither ‘ ‘ the claims of ownership nor those of control can stand against the paramount interests of the community ’ ’ . They recognize that institutional and political accommodations will need to be fashioned, but hold that: When a convincing system of community obligations is worked out and is generally accepted, in that moment the passive property right of today must yield before the larger interests of society. (p. 312)
COLIN MAYER – “ THE TRUST FIRM ” Mayer (2013) develops a critique of existing models of corporate governance – invoking many of the same arguments we have encountered already. He further expresses doubts about stock markets, in terms of their role in assigning value and as a disciplinary mechanism Through the exercise of voting rights (not available to non- ‘ excessive … control … shareholders) shareholders have extracting cash from the corporation at the expense of other stakeholders ’
COLIN MAYER – “ THE TRUST FIRM ” For Mayer (2013) ‘ a resolution of the problem requires corporate governance mechanisms that promote commitment and stronger managerial oversight ’ In order to achieve this – Mayer (2013) proposes ‘ The Trust Firm ’ (However, it is worth noting that he cautions against a universal form of governance – and acknowledges that different models may be appropriate for different industries)
COLIN MAYER – “ THE TRUST FIRM ” Mayer (2013) Trusts involve: the ‘ settlor ’ - the person(s) who put assets into a trust the ‘ trustee ’ - the person(s) who manages the trust the ‘ beneficiary ’ - the person(s) who benefits from the trust For Mayer (2013), this model ‘ differs from the agency relation of a director to a shareholder in a company, by which the director owes a fiduciary responsibility to the shareholder as the owner as well as the beneficiary of the property ’ In other words, the traditional agency model casts the shareholder as both settlor and beneficiary
COLIN MAYER – “ THE TRUST FIRM ” ‘ The trust firm is a corporation that has a board of trustees who are the guardian of the corporation ’ s stated values and principles ’ Examples of trusts include Indian Tata Group, ThyssenKrupp AG, Bosch Also, cooperatives are a form of trust In terms of how a Trust Firm is structured – there is wide variation.
COLIN MAYER – “ THE TRUST FIRM ” Mayer (2013) introduces a number of possibilities: For example … The trustees could range from a conventional corporate board appointed by the shareholders to self appointed or elected membership The trust could be accountable to a membership restricted to shareholders or broadened to include wider stakeholders
GEORGE GOYDER Goyder believed that the primacy accorded to shareholders in Company Law was “ indefensible on the grounds of justice ” (1951, p.25). He proposed that companies extended the active participation of, and accountability towards, workers, the community and consumers Goyder ’ s reforms were aimed at changing the institutional framework of industry and that “ it is the business of the law to establish framework ” ” (1951, p.5)
GEORGE GOYDER “ A company is self-owning ” , the idea that it belongs to the shareholders is a legal “ fiction ” (p.23) As a separate legal personality it “ is incapable of being owned ” (Short Bros case) Goyder acknowledges that under Company Law shareholders have certain rights, however, he is quick to point out that “ these rights do not constitute ownership. They are a right to participate in the residual income of the going concern and to repayment of the capital ” (p.24-25) Goyder (1951, p.17) notes that a shareholder ’ s risk is limited and hence ‘ known in advance ’ , whereby the worker ’ s risk is often ‘ unknown and unforeseeable ’
GEORGE GOYDER “ Despite the absence of proprietary rights to the company's assets and the (relatively) negligible degree of risk assumed by shareholders, the ‘ outworn and defective legal structure ’ still enforces directors to act in the sole interest of shareholders (Goyder, 1951, p.25) While acknowledging that the original providers of capital have a justifiable claim to a “ return on their investment with profit ” , he argues that “ there is nothing sacrosanct about a system which makes such rights perpetual ” (Goyder, 1961, p.21) “ to confer immortality on a financial obligation is to tie the hands of future generations ” (1961) ”
GEORGE GOYDER 1.The Company as a Trust 2.Memorandum and Articles of Association 3.Changes to Company Law
GEORGE GOYDER 1.The company as a trust Carl Zeiss and Ernst Abbe (1896) Abbe offered “ by deed of gift, the transfer of control of the Zeiss firm to itself. A "legal person" (juristische Person) to be called the Carl Zeiss Foundation was to be the new owner of the Zeiss firm and of Abbe's controlling interest ” (Mayer, 1961 )
GEORGE GOYDER 1.The company as a trust Among other things, the Foundation ’ s charter specified that the purpose of Zeiss should be concerned with: (a)The economic security of the business (b)The well being of workers (c)The efficient service to consumers (d)The responsibility of the community and education (e)The distribution of surplus should be restricted to one or more of the objects above
GEORGE GOYDER 2. Memorandum and Articles of Association “ The personality or essence of a company resides in its Memorandum and Articles of Association … If we can make it possible for all who work in industry to hold as their own intention, the definition of purpose set out in the company ’ s memorandum and articles of association, we shall have taken a long step towards the possibility of creating satisfying human relations in industry ” The possibilities of using this approach have recently been considered by David Cieply (2013, p.150): “ A corporate charter could make the board — or employees the electors of the place employee representatives on the board, as in Germany … without violating any of the property rights of shareholders ” .
GEORGE GOYDER 2. Memorandum and Articles of Association (a)General Objects (b)Articles I. Workers rights to membership II.Representation on Board of Directors III.Promotion IV.Chain of responsibility (c) Profits and Dividends
GEORGE GOYDER 3. Changes to Company Law (a) Workers to become members (b) Compulsory capital redemption (50 years) (c) Compulsory General Objects Clause
GEORGE GOYDER Goyder ’ s ideas inspired “ Ernest Bader, one of the few entrepreneurs ever to have given away his company, transferred his plastics resin business, Scott Bader Ltd., to a company limited by guarantee (the Scott Bader Commonwealth Ltd.) under a scheme inspired by Goyder. In turn Bader ’ s pioneering work provided one of several models from which E.F. Schumacher … developed his ideas about ‘ intermediate technology ’ based on smaller working units, communal ownership, and regional work-places ” (Jeremy, 1990, p.207; see also Marinetto, 1999).
SCOTT BADER & CO Ernst Bader established Scott Bader Commonwealth and vested the ownership of the firm – influenced by George Goyder Members of the commonwealth established a constitution on distribution of powers Restrictions • Firm of limited size • Ratio of highest to lowest paid not to exceed 7:1 • Members of the commonwealth are partners (not employees) • Board of Directors accountable to the commonwealth 40% profits to commonwealth (20% for bonus and 20% charity); 60% for tax and retained earnings
The merit of Scott Bader & Co “ lies precisely in the attainment of objectives which are generally assigned a second place or altogether neglected by ordinary commercial practice. In other words, the Bader “ system ” overcomes the reductionism of the private ownership system and uses industrial organisation as a servant of man, instead of allowing it to use men simply as capital ” means to the enrichment of the owners of (Schumacher, 1975, p.233).
PARKINSON (1993) Widen fiduciary duties to non-shareholder groups Disclosure and reporting requirement - Social audit and The Corporate Report Consultation and the composition of the board Smaller scale production Employee participation
QUESTIONS?
Part 4 – Corporate Governance in a Global Context: Business and Human Rights
MN4227: Corporate Social Responsibility, Accountability & Reporting Prof. John Ferguson
Human Rights – A (very) brief introduction The idea of human rights is “ simple and powerful ” (Ruggie, 2013) Natural Law (classical Greece), Magna Carta (1215), the US Constitution (1787) and the US Bill of Rights (1791) are written precursors to contemporary human rights (according to Douzinas, 2000) Grotius, Hobbes, Locke, Rousseau Contemporary manifestation through UN “ Architecture ” Not without criticism …
‘ Nonsense upon Stilts ’ Jeremy Bentham
Human Rights – The UN “ Architecture ” Universal Declaration of Human Rights – adopted by the UN General Assembly in 1948 Followed by Two Treaties: the International Covenant on Civil and Political Rights (ICCPR) the International Covenant on Economic, Social and Cultural Rights (ICESCR) Together – the declaration and the treaties are known as the “ International Bill of Human Rights ”
Human Rights – The UN “ Architecture ” • The UN Human Rights System now has 9 core treaties to protect human rights • States ratify (make legally binding commitment to) treaties • Each core treaty has an associated committee which is tasked with monitoring • International human rights law lays down obligations which States are bound to respect
Why Business And Human Rights ? Business and human rights “ became an increasingly prominent feature on the international agenda in the 1990s. The liberalization of trade, domestic deregulation, and privatisation throughout the world extended the scope and deepened the impact of [business and] markets ” Ruggie (2013, p.xxv) “ Multinational firms were unprepared for the need to manage the risks of their causing or contributing to human rights harm through their own activities and business relationships ” (p.xxvi) Ruggie, JG. (2013), Just Business: Mutinational Corporations and Human Rights (Norton: New York)
Why Business And Human Rights ? “ Governance gaps ” “ The root cause of the business and human rights predicament today lies in the governance gaps created by globalization — between the scope and impact of economic forces and actors, and the capacity of societies to manage their adverse consequences. These governance gaps provide the permissive environment for wrongful acts by companies of all kinds without adequate sanctioning or reparation ” . (Ruggie, 2008, p.189) Ruggie, J.G. (2008), Protect, Respect and Remedy A Framework for Business and Human Rights , available at: http://www.mitpressjournals.org/doi/pdf/10.1162/itgg.2008.3.2.189
Why Business And Human Rights ? Transnational corporations – proliferation of bilateral investment treaties ’ allow investors to take companies to binding international arbitration. For example, “ A European mining company operating in South Africa recently challenged that country ’ s black economic empowerment laws on these grounds ” (Ruggie, 2008, p.189). Legal framework regulating transnational corporations - a parent company and its subsidiaries construed as distinct legal entities. Therefore, the parent company is generally not liable for wrongs committed by a subsidiary Relative power of states - some developing countries may lack the institutional capacity to enforce national laws and regulations against transnational corporations Offshore sourcing, supply chain issues – especially where governance challenges are greatest (conflict, corruption, rule of law)
BHOPAL
Business and Human Rights “ Because companies can affect virtually all internationally recognized rights, they should consider the responsibility to respect in relation to all such rights …” Ruggie, J.G. (2008), Protect, Respect and Remedy A Framework for Business and Human Rights , available at: http://www.mitpressjournals.org/doi/pdf/10.1162/itgg.2008.3.2.189
UN, Business And Human Rights 2000 - UN Global Compact 2004 - Draft Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights 2005 - UN Secretary-General's Special Representative on business & human rights – John Ruggie 2008 - Protect, Respect and Remedy Framework 2011 - Guiding Principles
UN Global Compact •“ asks companies to embrace universal principles and to partner with the United Nations ” •“ has grown to become a critical platform for the UN to engage effectively with enlightened global business ” Ban Ki-moon • more than 10,000 participants; over 7,000 businesses in 145 countries around the world. • Human rights lowest implemented of principle areas • Less than 25% respondents report risk assessments on human rights, labour issues or anti-corruption 88
The “ Norms ” Norms essentially sought to impose, as binding obligations on companies directly under international human rights law, the same range of duties that states have accepted for themselves: namely “ to promote, secure the fulfillment of, respect, ensure respect of, and protect human rights, ” States would have “ primary ” duties and companies would have “ secondary ” duties
The “ Norms ” • Business vehemently opposed; human rights advocacy groups strongly in favor • The Commission on Human Rights declined to adopt the Norms • “ sphere of influence ” • norms imposed responsibilities for rights that states had not yet recognised (eg – living wage) • Attributing duties to corporations? • Undermine domestic and political incentives • From shareholder to stakeholder mode of governance
Protect, Respect and Remedy Following a rejection of ‘ the Norms ’ – the commission requested the UN Secretary-General appoint a Special Representative to help move beyond the stalemate John Ruggie, the Special Representative of the Secretary- General of the United Nations (UN) on the Issue of Human Rights and Transnational Corporations and Other Business Enterprise
Protect, Respect and Remedy • States duty to protect human rights • It also includes an obligation to protect against actions by non- state actors (such as corporations) • Actions of non state actors (corporations) can be attributed to state: • If empowered by state • If acting under direction of state • If state complicit or fails to exercise due diligence
Protect, Respect and Remedy • Corporate responsibility to respect human rights ( All internationally recognized rights) • Corporations do not have the same obligations as states • Responsibility- Social expectation, social norm, social license to operate • Due diligence • Complicity
Protect, Respect and Remedy Access to remedy Effective grievance mechanisms States – should strengthen judicial capacity to hear complaints/enforce remedies Non-judicial mechanisms Corporations- voluntary actions, criminal responsibility
Guiding Principles The GPs were unanimously endorsed by the Human Rights Council in 2011 GPs ‘ operationalize ’ Protect, Respect, Remedy framework Provides recommendations on implementation An emerging consensus on corporate social responsibility? The implementation of the GPs - focal point for a wide range of of actors concerned with the development of new forms of governance: Corporations, state agencies, NGOs, civil society groups, professional bodies and international organisations.
RAFI – Reporting and Assurance Framework • Developed by Shift, a non-profit centre on business and human rights and audit and consulting firm Mazars • Due diligence - to “ know and show ” • Global Reporting Initiative (GRI) – Memorandum of Understanding • Integrated Reporting – involved in development of RAFI; can be used as guidance for reported information • See: https://www.ungpreporting.org/assurance/
RAFI – Reporting and Assurance Framework Reporting Policy and embedding human rights – including with business relationships Statement of salient issues and how they were determined Management of salient issues through policies, stakeholder engagement and tracking performance Criticism – guidance “ high level ” ; lacks detailed description
Other Developments • National Action Plans • UK were the first country to develop action plan • Scotland are in the process: • http://www.snaprights.info/action-areas/better- world/business-and-human-rights
Other Developments • UK Modern Slavery Act • OECD Guidelines for Multinational Enterprises, containing a human rights chapter drawn from the Guiding Principles and national complaints mechanisms. • International Finance Corporation Sustainability Principles and Performance Standards, - which affect access to international capital.
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