InternationalCorporate AccountabilityRoundtable

DefiningCompliance: WhyRecentDevelopmentsinLawandPolicy ShouldMattertotheCorporateAccountability Movement

ByMarkB.Taylor

WhatistheInternationalCorporate AccountabilityRoundtable?
TheInternationalCorporateAccountabilityRoundtable(ICAR)isa coalitionofleadinghumanrightsorganizationsincludingAmnesty International,EarthRightsInternational,GlobalWitness,Human RightsFirstandHumanRightsWatch. ICARharnessesthepowerofthehumanrightscommunitytoidentify andpromoterobustframeworksforcorporateaccountability, strengthencurrentmeasuresanddefendexistinglaws,policiesand legalprecedents. Formoreinformationaboutourworkandourcampaigns,visit www.accountabilityroundtable.org,oremailICARCoordinator AmolMehraatamol@accountabilityroundtable.org.

DefiningCompliance: WhyRecentDevelopmentsinLawandPolicy ShouldMattertotheCorporateAccountability Movement

ByMarkB.Taylor

MarkB.TaylorisaSeniorResearcherattheFafo InstituteforAppliedInternationalStudies,Oslo.In addition,heisalsoaSeniorAdvisortoGlobal Witness'EndingImpunitycampaignandFafos representativeontheJustJobsNetworkledbythe CenterforAmericanProgress.MarkisEditorofthe legalanalysisblogLawsofRule (www.lawsofrule.net)andthe'RedFlags'initiative (www.redlfags.info),aswellasanoccasional commentatorforAlJazeeraEnglishtelevisionon internationallaw.AformerManagingDirectorof FafoAIS,Markworksprimarilyonregulatoryand policyresponsestoviolenceandconflict,in particularthewaysinwhichlawisappliedtonon stateactors(armedgroups,warlords,business).In addition,Markhascoveredsuchissuesasthe sociologyofarmedgroups,thereformofUNpeace operationsandinstitutionalprotectionsforhuman rights.

abuse,iattemptstoendimpunityare certaintocontinue. Inthepasttwelvemonths,therehavebeen developmentsinlawandpolicythatare relevantforthosepursuingan accountabilityagenda.Thesedevelopments haveoccurredbothintheU.S.andglobally andareinpartaresultoftheworkofthe corporateaccountabilitymovement.Taken togethertheyreflectanopportunityfor improvedcorporateaccountabilityand greaterclarityandpredictabilityof regulation.

DueDiligence
Foryears,thedebatehasrumbledonover thenatureofbusinesshumanrights obligations.Manybusinesses,NGOs, multilateralorganizationsandgovernments madeclaims,butithadnotbeenatallclear whathumanrightsobligationsbusinesses had,neitherinprinciplenorinpractice.For example,formanywithaCorporateSocial Responsibility(CSR)approach,respecting humanrightswaspartofeverythingthat was'beyondcompliance'withthelaw.This viewneglectedthefactthatthedefinition
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Thecorporateaccountabilitymovementhas pioneeredtheattempttoapplyexisting lawstocrimesandharmscausedby businessentities.Attemptstoestablish corporateaccountabilitythroughlitigation havehadbothsuccessesandsetbacks.The pushtoendimpunitythroughthecourts hasspread,becomeaglobalphenomenon andhasgainedmomentum.Althoughthere aremanyobstaclestoaccesstojusticefor victimsofbusinessrelatedhumanrights


ofcompliancewithhumanrights responsibilities,includingunderwhat jurisdictiontheseweretobejudged,was preciselytheproblem. Inthepasttwelvemonths,inaremarkable butlongoverduespurtofinter governmentalconsensusandcoherence, thequestionofwhatisrequiredof businesseshasbeenansweredintheform ofsignificantnationalandinternational legislativeinitiatives. IntheUnitedStates,yearsofcampaigning onthecommercialaspectsofthewarsin DemocraticRepublicofCongo(DRC)ledto theadoptionin2010oftheconflict mineralsprovision(1502)oftheDoddFrank WallStreetReformAct.TheActrequires companieswhoseproductsrelyoncertain mineralstantalum,tin,tungsten(the threeTs)andgoldtofiledisclosuresofthe countryoforiginofsuchmineralsintheir annualreportingtotheSecuritiesand ExchangeCommission(Commission). Wheretheoriginofthosemineralsisnot known,orwherethosemineralsoriginate fromtheDRCorcertainneighboring countries,thecompanywouldthenbe requiredtofileanadditionalreporta ConflictMineralsReportexplaining whatduediligenceithasexercisedonits supplychain.TheCommissionisexpected topromulgateregulationslaterin2011that willmakeclearthestandardagainstwhich businessduediligencewillhavetobe conductedinordertobeincompliancewith section1502. TheCommissionhasasignificantand coherentbodyofinternationalsoftlaw legislationtodrawon.In20092011,the OECDshepherdedthe"DueDiligence GuidanceforResponsibleSupplyChain ManagementofMineralsforConflict

AffectedandHighRiskAreas,"adetailed descriptionofduediligenceforthemineral sectoroperatinginDRC.ThisGuidancewas specifictothemineralsectorsrelevantto theDRCconflictandfocusedonthe problemofconflictfinancingandgrave humanrightsabusesfoundintheeastern partofthatcountry,howeverits significanceliesinthatitisperhapsthefirst softlawdescriptionofwhathumanrights duediligencewouldlooklikeatthesector orindustrylevel. TheGuidancewasendorsedbythe InternationalCommissionontheGreat LakesRegion(ICGLR)inearly2011and signedoffonbytheOECDCouncilof MinistersintheSpring.Atthesame meeting,theCouncilalsoapprovedthe revisedGuidelinesforMultinational Enterprises,whichforthefirsttime includedasignificantamountofhuman rightscontent.TheseGuidelines,too, centeredontheconceptofduediligenceby businessasthebasisforensuringrespect forhumanrights. ThedraftersofthetwoOECDdocuments coordinatedtheirworkwiththeframework developedbySpecialRepresentativeofthe UNSecretaryGeneral(SRSG)onBusiness andHumanRights,ProfessorJohnRuggie. RuggieformulatedtheProtect,Respect andRemedyFramework(2008)inwhich heproposedthatabusiness'sresponsibility forhumanrightsarisesoutofitsactivities andrelationships(itsimpacts)andthatits abilitytorespecthumanrightsdepends uponitsimplementationofduediligence. TheUNHumanRightsCouncil(HRC) welcomedtheFrameworkandinJune2011, endorsedtheGuidingPrinciples,whichare intendedasasoftlawinstrumentto implementtheFramework.
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TheGuidingPrinciplesdescribeabalanceof dutiesinwhichStatesdutiestoprotect humanrightsthefirstpillarofthe Frameworkmakethemultimately responsibleforhumanrights,including providingmostformsofremedy(thelatter separatedoutasathethirdpillarofthe Framework).Businessresponsibilitieswere nestledwithinthisoverarchingstatedutyas thesecondpillar.TheGuidingPrinciples establishedclearlythatStatesduties includetheneedtocreatelegallybinding ruleswithrespecttohumanrightsand business,whereStatesseefittodoso withintheirjurisdiction.ii ItispossiblethatDoddFrank'sconflict mineralsprovisionswillbethefirstexample ofaStatecreatingbindingruleswith respecttohumanrightsduediligence. MuchdependsonwhethertheCommission integratesthehumanrightsstandards suggestedbytheSRSGortheOECD GuidanceandGuidelines.Butthefact remainsthatin2011aninternational consensushasemergedthatduediligence itselfisaregulatoryapproachthat governmentscanlivewith. Thatbeingsaid,itremainstobeseen whethergovernmentswillacttocodifydue diligenceinregulation.Legallymandatory humanrightsduediligencerequirementsat thenationallevelwouldgoalongway towardclarifyingexpectationsforboth victimsofbusinessrelatedhumanrights abuseandbusinessesthemselves.Both wouldgainintermsoftheclarityasto unacceptablebehavior,thepredictabilityof bindinglawandtheoptionsavailablefor remedy. Thereareanumberofquestionsstilltobe answered,butalreadythereareseveral

indicationsthatthereisvalueinalegislative approachtoduediligence. First,theconceptofduediligencecomes fromcommerciallaw,thatislawapplicable tobusinessentitiesandbusinessactivities. TheUSSecuritiesActof1933isonekey example,whereinduediligenceon securitiesisadefenseavailabletobrokers shouldtheyfaceclaimsforcompensation bypurchasersofthosesecurities.Similarly, implementationoftheForeignCorrupt PracticesAct(FCPA)alsoallowsadue diligencedefenseforcompaniesfacedwith allegationsofactsofbribery.Becausedue diligencecomesfromlaw,andfromlaw directlyapplicabletobusiness activities/entities,itsuseindefining responsibilitiesofbusinessforhumanrights avoidstheusualgeneralchallengethat humanrightslawisonlyapplicableto Statesandissomehownotapplicableto businessactivities.Italsoimpliesthatdue diligenceisalegalconceptthathasstood thetestoftimeandbusinesspracticeandin thatsenseisnotan"idiosyncratic"iiior unreasonabledemandforcitizensandtheir governmentstomakeofbusiness. Second,duediligencereflectsthetheoryof attributionforhumanrightsresponsibilities nowrecognizedininternationalsoftlaw. Previously,akeyproblemwiththe attributiontobusinessofresponsibilitiesfor humanrightshadbeenindefiningfrom whattheseresponsibilitiesarose.Notions suchasabusinessssphereofinfluence simplydidnotworkasabasisforculpability orresponsibilityunderthelaw.But embeddedintheGuidingPrinciples,the OECDGuidanceandGuidelines,andDodd Frankistheideathatbusinessresponsibility arisesnotfromabusinessssphereof influence,butfromitsbusinessactivities andrelationships.Thisisintuitivetomost
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peopleasthebasisforethicalresponsibility (weareresponsibleforouractions),justas itisunderbothcivilandcriminallawin everyjurisdiction.Inshort,thereisasound basisforlawandpolicycoordinationacross borders,preemptingtheclaimthat domesticlegislationwillputfirmsata disadvantage. Third,duediligenceshiftsthelegalburden awayfromvictimswhereitpresentlyrests inmostcivillitigation,forexampleand ontothebusinessentity.Thisisnotan unreasonableoronerousburden.Itisnot unreasonablebecauseatissuearethe actionsofbusinessesortheiragents.No more,noless.Itisnotonerousbecausedue diligenceisbydefinitiondelimitedbythe rangeofactivitiesandrelationshipsin whichthebusinessisinvolvedanddoesnot extendtotheentireuniverseofpotential humanrightsabusewithinaparticular jurisdiction.Finally,itisentirelyappropriate totheproblem:itistheseactivitiesand relationshipsthatthebusinessknows betterthananyoneoutsidethecompany. Putanotherway,isitreasonabletoplace thelargestburdenofproofonthose outsidethecompanywhoarelesslikelyto knowallactionstakenbythecompanyorto haveeasyaccesstotherelevant information? Finally,someformoflegallymandatory humanrightsduediligencerequirement wouldbebestpursuedatthenationallevel. Thisisbecausetheregulationofmarket basedactivityisanationalfunction,and becausehumanrightsprotectionistheduty ofStates.Themultilateralworkto coordinatethebasicpolicyelementshas beenputinplaceintheformoftheGuiding PrinciplesanditisuptoStatestoadoptand adaptthePrinciplestotheirowneconomies andlaw.Oneoftherealitiesofhowa

companyactuallyconductsduediligenceis that,whilethebasicmethodisadaptableto allindustries,onesizedoesnotfitall sectors.Duediligencewilllookslightly differentdependingonthesectorinvolved. Inaddition,differentcountrieshave differentlegalandregulatorytraditions. Businesscanandshouldbegintoconduct duediligencetoensuretheyarerespecting humanrightsnow.Statescanandshould begintoconsiderwhatlegislationmaybe necessarynow.Andtogettheprocesses going,campaignerswillneedtofocuson theparticularitiesofgeneratingpoliticalwill atthedomesticlevel,whilekeepingtheir demandscoordinatedinternationally.

TheChallengeofDisclosure
Promotingthepracticeofduediligence, evencampaigningtogetitcodifiedasa mandatoryrequirement,willbelessthan usefulifthereisnotsignificantlegislative changewithrespecttobusiness responsibilitiesfordisclosure. Todate,thishasoccurredintheUnited StatesintheformoftheDoddFrank provisionsonconflictminerals(1502)and onpaymentsbyextractiveindustryentities togovernments(1504).Bothprovisionsare primarilyaboutdisclosure,thatis,through disclosuretheyaimtoincrease transparencyofbusinessbehaviorwith respecttomineralextractionandpayments togovernment.Thelogicofthisissimple andnotnew:disclosurepullsbackthe curtainofcommercialsecrecybehindwhich harmfulbehaviormaytakeplaceandinso doingenablestheregulatoryinfluenceon companiesofbothmarketsandcivil society.


Itisimportanttoemphasizethatdisclosure totheSECisnotthesameasCSRor sustainabilityreporting.Reporting alternatives,suchastheGlobalReporting Initiative,orstandardssuchasISO26000, aredesignedtoreassuremarketsthata businessismeetingavoluntarystandard. Thiswillrespondtosomeextenttothe demandsofthoseinvestorsand shareholdersinterestedinseeingthat companiesinwhichtheyinvesthavehuman rightspoliciesandduediligenceprocedures inplace.Itwillserveasasignaltothe marketsofloweredrisksthataparticular businessisviolatinghumanrights. ButtheseformsofCSRreportingare unlikelytotellusmuchwithregardto whererightsareviolatedor,forthat matter,wherebusinesseshaveattempted topreventormitigatethoseabuses.While theyareastepintherightdirection,such reportingwillnotprovidethelevelof transparencynecessaryforexternal oversightormonitoringofcompliancewith humanrightsstandardsunderadue diligenceapproach.Suchreportingdoes littletorespondtoneedsofvictimsof humanrightsabuse.Nordoesitaddressthe risksfacedbycompanieswhowillbe increasinglyunderpressuretoissuea reportthatincludethebadnewsaswellas thegood,e.g.whereviolationswere encounteredandhowtheyweredealtwith. Afewmultistakeholderinitiativesfor example,theFairLaborAssociation(FLA) havesoughttocreateaspaceinwhichthe badnewscanbeairedanddealtwith.The objectivehasbeentousetransparencyby theparticipatingbusinessesforthebenefit oftheworkerswhomanufacturetheir products.Significantly,theFLAwas originallyconvenedunderagovernment umbrella,providingapublicpolicyglossto anotherwisebusinessandlaborfocused

initiative.TheFLAhasnotbeenwithout controversy,butbecausetheFLAwasone ofthefirstoutoftheblocks,thesuccesses andfailuresoftheFLAwithrespectto disclosureandmonitoringwillhave importantlessonsforthedesignofdue diligencedisclosure. Theexistingincentivestructureforbusiness meansthatfewbusinesseswillwantto publishinformationabouttheirviolationsof humanrights.Mostcompaniesdonotsee suchinformationasapartofbuildinga strongbrand.Thedisclosureprovisionsin 1502and1504(aswellasin1503on mining)areamanifestationofthefactthat apublicpolicysolutionintheformof legislationisnecessarytoovercomethe challengesthatcommercialsecrecy, materiality,andalltheassociatedmarket basedrisksoftransparencyposetothe needforoversight.Thesebasiclegaland commercialchallengesmeanthatnational legislationisneeded,notonlyonconflict mineralsorextractiveindustrypayments, andnotonlyintheUnitedStates.Onits own,themarketwillnotdeliveroversight sufficientfortheprotectionofhuman rights,justasithasnotdeliveredsufficient oversightwithrespecttoconflictminerals, minesafety,orextractiveindustry payments. Finally,giventherealitiesofcommercial secrecyandmarketbasedcalculationsof risk,itisworthconsideringwhethera statutoryrightofaccesstoinformation aboutthebusinesssectorsparticipationin specifichumanrightsbreachesand/or theirduediligencewithrespecttohuman rightsisanimportantandnecessary supplementtothestandardizedCSR reportingmanybusinessesarenowstarting tointroduce.Justaslegislationpermits citizenstodemandinformationfromtheir
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governmentsonacasebycasebasis,such legislationwouldpermitvictimsofhuman rightsviolationstoseekdisclosurefroma businessabouttheduediligence,including remedialsteps,takeninrelationtoaharm theyhavesuffered.Thisisnottoimputethe dutiesofgovernmentstobusiness.Itis simplytorecognizetheveryreal imbalancesinpowerandresourceson thesequestionsandtosuggestone mechanismwhichmighthelplevelthe playingfieldbetweencorporationsand citizens. Thereisanemergingnormativeconsensus aroundduediligenceasthefocusofa business'responsibilitytorespecthuman rightsanddisclosurerequirementsto ensureaccountability.Thisisfinding purchaseindomesticlegislationinthe UnitedStates,theworld'slargesteconomy. Atitscoreisthenotionthatforabusiness torespecthumanrightsrequiresittotake actiontoensureitisnotinfringingonthe rightsofothers,inotherwordsthatit shoulddonoharm.Butduediligenceby companiesismorelikelytotakeplace withinalegislativeframeworkprovidedby governments. Business,inshort,shoulddonoharmand governmentsneedtostepupwith legislationtoensurethathappens.Butnew lawsdonotemergefromavacuum. Businesscompliancewitharule,andState enforcementofthatrule,arefunctionsofa largerregulatorydynamicthatisdrivenby socialandmarketforces.Withouteffective campaigning,theopportunityaffordedby

thepresentconvergenceofnormative consensusaroundduediligencewillbelost. Morespecifically,acampaignthatcreates andmobilizesconstituenciesbehindthe needforbusinessaccountabilityforhuman rightsabuseshouldaimnotonlytoreform thelaw,butatthesametimeshould organizetoensurethesustainabilityofthe reformsandtheirdesiredoutcome.Sucha campaignwillhavetobuildsupportforthe principleobjective,bothintheUnited Statesandinsupportofalliesabroad,and buildintothatobjectivetheorganizationof thelongertermbaseorconstituencywhich willcreatethespace/willforcourtsand prosecutorstoactonthelawspassedin theirrespectivejurisdictions:forlawstobe passedisonething,tobeenforcedis another,andtorepelattemptsatrepeal somethingelse.Todoallofthisagainstthe inevitableoppositionofmultinational corporationsdemandsasimpleandclear demand,frontedbywellorganizedand strategiccampaigns. Forallofthesereasons,ifICARdidnot alreadyexistitwouldhavetobeinvented. Amandatoryobligationtorespecthuman rights,andtoconductduediligencein implementingthatobligation,wouldseema sensibleplacetostart.

Conclusion

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Fafo,AmnestyInternational,Noref:(2010)OvercomingObstacles toJustice.ImprovingAccesstoJudicialRemediesforBusiness InvolvementinGraveHumanRightsAbusesTaylor,MarkB.,Robert C.ThompsonandAnitaRamasastry.Faforeport2010:21 ii Taylor,MarkB.(2011)TheRuggieFramework:Polycentric regulationandtheimplicationsforcorporatesocialresponsibility Etikkipraksis.NordicJournalofAppliedEthics,5(1),pp.930. iii Steinhardt,R.(2005)CorporateResponsibilityandthe InternationalLawofHumanRights:TheNewLexMercatoria.InNon StateActorsandHumanRights,ed.PhilipAlston,pp.178226. Oxford:OxfordUniversityPress.