Annex B
Extract from a briefing from FOE-International
on the proposed Corporate Accountability Convention
ELEMENTS OF
A CORPORATE
ACCOUNTABILITY CONVENTION
FoEI here outlines elements of a convention
that seeks to meet these objectives. They would establish checks
and balances on corporate behaviour and ensure companies must
earn a "license to operate".
A corporate accountability and liability convention
would require signatory Governments to do the following:
INTRODUCE DUTIES
ON CORPORATIONS
1. Impose duties on publicly traded companies,
their directors and board-level officers to:
— report fully on their environmental
and social impacts, on material risks and on breaches of environmental
or social standards (such reports to be independently verified);
— ensure effective prior consultation
with affected communities, including the preparation of Environmental
Impact Assessments (EIA) for significant activities and full public
access to all relevant documentation; and
— take the negative environmental and
social impacts of their activities fully into account in their
corporate decision making.
Duties on directors
Targeting directors ensures objectives can be
delivered through existing mechanisms of corporate governance
and there are directly responsible individuals to deliver them.
In most regimes directors take their legal responsibilities seriously
because they can be debarred from holding directorships if they
breach them.
Focussing on those corporations traded on stock
exchanges (eg UK Public Limited Companies (PLCs), German Akiengesellschaft
(AG) and French Societe Anonyme (SA)) is less ambitious than Governmental
codes of conduct such as the UN Commission on Human Rights initiative,
and the OECD Guidelines which capture all business entities (as
"juridical persons"). While it may act as a disincentive
for companies to issue shares, it nevertheless offers several
advantages:
— It captures both the majority of
impacts of public concern and the majority of transnational companies.
Although the regime we are proposing is not foreseen as imposing
a heavy regulatory burden, it deliberately excludes unlisted small
and medium sized enterprises which have impacts of public concern,
but are of great significance to local economies and livelihoods
in many countries, and have limited capacity to deal with regulatory
requirements.
— The legal foundation of the publicly
traded corporation model is the duty to maximise shareholder returns.
It is this duty which drives the externalisation of costs onto
the environment and society.
— There are existing mechanisms established
in law in many countries which could be adapted to implement these
measures for public companies. Moreover, the benefits of publicly-traded
status are effectively a substantial subsidy from society to these
corporations—for which society can legitimately expect some
return.
Reporting
The aim here is to establish the principle of
reporting issues which are of interest and concern to the public,
rather than simply those of financial interest to shareholders.
Reporting serves two basic purposes. It ensures a corporation's
attention to the things that must be reported (for example how
it is performing against standards). It also provides a mechanism
for the public, including investors, to identify the corporation's
impacts. Such information is fundamental for active investor and
other stakeholder participation.
Reporting on risks is particularly important
for investors as it ensures they have the same level of knowledge
as the corporation does about its business. The definition of
"material" in this case must include not only what are
conventionally recognised as financial risks, but also risks of
damage to environmental or social interests.
Corporate reporting and disclosure are presently
subject to wide debate. The Global Reporting Initiative format
may prove adequate in terms of coverage, but must also require
verification—preferably by affected stakeholders through
some form of independent assurance. Robust reporting helps ensure
investors are supplied with the same information as executives
and ensures markets are based on "real" values of corporations.
Prior consultation
Prior consultation is a leading demand from
communities in Southern and East European countries. They have
experienced the disruptive impact of inward investment and have
had limited or no opportunity to participate in decision-making
(on planning applications for example) in ways considered normal
practice in many Northern countries. Similarly EIA is expected
by some authorities (eg the EU) and public finance mechanism (eg
the World Bank) but it is not a minimum requirement elsewhere.
A useful precedent is the ILO Indigenous and Tribal Peoples Convention
of 1989. Failure to undertake meaningful assessments and consultations
should result in enforcement.
This demand requires a higher degree of disclosure,
transparency and prior notice about corporate activities. It is
equivalent, for example, to the requirement in some European countries
for notification of workforces of changes planned by management.
High standards for implementation will also be needed as the experience
in developing countries is often of selective consultation and
misleading use of data.
Taking account
At present directors of publicly traded corporations
have a duty to account to shareholders and maximise financial
returns. This new provision would require them also to account
to other stakeholders such as communities, and to balance financial
returns with the interests of these other affected stakeholders.
Corporations will argue that such a requirement
would be confusing and impractical for directors. But directors
are already subject to legal challenge from investors and customers
in certain circumstances. They must also balance the short and
longer term interests of investors, for example in deciding how
much profit to distribute as a dividend. This provision extends
those circumstances to include a wider range of public interests.
It deepens the concept of due diligence and applies it to all
corporations, (including investors). It implies that due diligence
incorporates social and environmental effects and assessment of
whether governments have met relevant international standards
or requirements.
EXTEND LIABILITY
OF CORPORATIONS
2. Extend legal liability to directors for
corporate breaches of national environmental and social laws and
to directors and corporations for breaches of international laws
or agreements.
Directors' liability
Beyond new duties for directors outlined above,
there are responsibilities relating to existing national environmental
and social laws. Directors should be personally responsible for
company compliance with applicable laws, including breaches thereof.
Precedents include the Environmental Protection Act 1990 in the
UK which holds directors liable for corporate pollution offences.
Such liability must survive corporate mergers.
International agreements and laws
Extending directors and corporate liability
to activities that breach international agreements is already
under consideration as a Framework Convention on Liability. A
number of governments have raised this issue as a priority in
the course of regional preparatory meetings for the WSSD. This
would ensure that many existing agreements on the environment
and human rights which currently apply only to states could now
be applied directly to corporations.
Ecological debt
Liability questions must also address compensation
for ecosystem degradation and restoration.
INTRODUCE RIGHTS
OF REDRESS
FOR CITIZENS
3. Guarantee legal rights of redress for citizens
and communities adversely affected by corporate activities, including:
— access for affected people anywhere
in the world to pursue litigation where parent corporations claim
a "home" are domiciled or listed;
— provision for legal challenge to
company decisions by those with an interest; and
— a legal aid mechanism to provide
public funds to support such challenges.
Access to justice
Access to justice is essential for securing
accountability. Our proposal ensures that individual citizens,
communities and third parties, such as pressure groups representing
environmental or social interests, can pursue cases in a company's
"home" country courts where necessary.
Action where listed
Presently there are highly variable opportunities
for stakeholders, even employees, to seek, redress where ultimate
ownership may be remote—a typical situation with most transnationals.
Companies domiciled in the US may face actions under the US Alien
Tort laws. The Brussels convention on jurisdiction, states that
for EU-based parent companies the country of domicile is the place
of jurisdiction. Yet few, if any, "foreign direct liability"
actions have been brought. Cases are often defeated or discouraged
by the problems of access to relevant and fair courts. The time
cases take is a disincentive—for example, the Cape Asbestos
case has taken several years to be heard, and in the meantime
some of the workers made ill by exposure to asbestos have died.
There is also a strong case for states having
legal responsibility for the actions of corporations domiciled
or which have a home there—including for example, where
they are listed. In situations where redress would otherwise not
be available, such as after bankruptcy, citizens and communities
would then still be able to pursue their case. A precedent is
the assumption of state responsibility for outside pollution caused
by anyone within its jurisdiction.
Challenge to decisions
If corporations and directors have new duties,
rights are needed for those who have cause to challenge the decisions
they have taken. This would give legal force to new duties and
to corporate environmental and social reporting. Rights of legal
challenge would need to prevent vexatious cases, while ensuring
real concerns are not excluded by loopholes. Third party stakeholders
might be expected to demonstrate an interest or show damage to
be able to pursue a case.
Legal aid
Citizens in the developing world are daunted
by the costs involved and most potential litigants by the risk
of a corporation's costs being charged to them if a case is lost.
Therefore a legal aid mechanism is necessary.
ESTABLISH COMMUNITY
RIGHTS TO
RESOURCES
4. Establish human and community rights of
access to and control over the resources needed to enjoy a healthy
and sustainable life, including rights:
— over common property resources and
global commons such as forests, water, fisheries, genetic resources
and minerals for indigenous peoples and local communities;
— to prior consultation and veto over
corporate projects, against displacement; and
— to compensation or reparation for
resources expropriated by or for corporations.
FoEI has long advocated environmental rights
and many governments have also raised the suggestion of launching
a negotiation on an environmental rights convention at regional
prepcoms for the WSSD. Control over resources is an elaboration
of such rights. Useful precedents include the 1975 Land Rights
Act in Australia which gives Aboriginal peoples right of veto
over mining on their land. In practice, this has allowed them
to set conditions relating to royalties, job provision and training.
Also the 1997 Indigenous Peoples Rights Act in the Philippines
which requires prior informed consent for corporate projects in
ancestral lands and domains. The ILO Indigenous and Tribal Peoples
Convention, 1989 (number 169) also requires respect for the rights
of communities and local populations. Communities must be granted
the right to apply the precautionary principle in exercising their
rights and the burden of proof concerning the potential for harm
must be placed clearly on the corporation involved.
ESTABLISH CONSISTENTLY
HIGH STANDARDS
OF BEHAVIOUR
5. Establish (and enforce) high minimum environmental,
social, labour and human rights standards for corporate activities—based
for example on existing international agreements and reflecting
the desirability of special and differential treatment for developing
countries.
The focus of this proposed convention is on
implementation mechanisms because of the imperative need to develop
capacities—especially in poorer countries and communities—to
ensure relevant standards of behaviour are implemented and enforced.
But international minimum standards for corporate performance
are necessary. Principally such standards should be based in existing
and developing multilateral environmental and social agreements
(and others as necessary). It would be easy to get bogged down
in the details of standards, but once effective implementation
mechanisms are in place then the development of standards can
follow.
The concept of "special and differential
treatment" for developing countries is well established.
It may be appropriate to apply such an approach to this provision
giving developing countries longer to establish standards and
access to financial support. Standards of behaviour would also
need to be more stringent, for example, in areas of high biodiversity
value such as IUCN Category I to IV protected areas.
INTRODUCE SANCTIONS
6. Establish national legal provision for
suitable sanctions for companies in breach of these new duties,
rights and liabilities (wherever the breaches occur) such as:
— suspending national stock exchange
listing;
— withholding access for such companies
to public subsidies, guarantees or loans;
— in extreme cases the withdrawal of
limited liability status
The threat of robust sanctions provides an incentive
for corporations to respect greater accountability. They are necessary
to protect affected people (including future generations) and
non-human species. A set of appropriate legal sanctions are needed.
Provisions exist for suspending stock market listings in some
countries—for example for breaches of reporting requirements.
Such provisions need to be extended in scale to cover all countries,
and in scope to cover environmental and social issues. The withdrawal
of limited liability status is more-or-less the death sentence
for a company. It should be seen as a final sanction for repeat
offenders and possibly only available to the International courts.
Governments can control access to public support
for corporations and therefore this also represents an opportunity
for securing corporate accountability. The principle of screening
corporations for eligibility for public support must be established.
There are precedents: some countries are considering withholding
export credit guarantee from companies in breach of the corruption
convention or the OECD Guidelines for multi national enterprises.
Also loans by international financial institutions such as the
World Bank are already screened.
EXTEND ROLE
OF INTERNATIONAL
CRIMINAL COURT
7. Extend the jurisdiction of the International
Criminal Court to try directors and corporations for environmental,
social and human rights crimes.
The International Criminal Court would provide
an independent forum for hearing cases, perhaps including a special
tribunal for environmental abuses. Eligibility for hearing or
referral to this court would need to be defined.
IMPROVE MONOPOLY
CONTROLS
8. Establish international controls over mergers
and monopolistic behaviour by corporations.
The growth of corporate scale has led to the
consolidation of economic power and increasing political influence.
At present countries are under pressure from corporations with
national links based there to relax anti-trust and merger controls
to enhance competitiveness in global markets. This measure would
need to reinforce national controls while providing a robust system
to prevent the development of monopolies at any scale or over
any market, national or international.
IMPLEMENTATION MECHANISM
9. Establish a continuing structure and process
to monitor and review the implementation and effectiveness of
the convention.
An effective institutional structure, rigorous
implementation and enforcement and an effective monitoring system
are essential for a convention such as this to work. Clearly all
stakeholders would have to have opportunity to access the process,
including NGOs. Continuous review would allow for updating content—for
example with respect to performance standards. Effective outreach
and education to increase the profile of the agreement with those
who might make use of it would be essential not the least because
this would increase its incentive effect on corporations.
NOTES
1. The Gothenburg European Council conclusions,
15 and 16 June 2001: "Strategy for sustainable development"
http://ue.eu.int/pressData/en/ec/00200-rl.enl.pdf.
2. The European Commission Communication
"A Sustainable Europe for a Better World: A European Union
Strategy for Sustainable Development" 5 May 2001/COM(2001)
264 final: http://europa.eu.int/eur-lex/en/com/cnc/2001/com2001—0264en01.pdf.
3. European Commission Communication: COM(202)
82 final "Towards a global partnership for sustainable development"
http://europa.eu.int/eur-lex/en/com/cnc/2002/com2002—0082en01.pdf.
4. FoEE, EEB and NFI, October 2001: Indicators
for Sustainable Development: http://www.foeeurope.org/publications/indicators—for.htm.
5. Council conclusions on environment-related
headline indicators for sustainable development, 28 November 2001
http://ue.eu.int/Newsroom/related.asp?max=1&bid-75&grp-4072&lang=1.
6. Commission Communication, 16 October
2002, "Structural Indicators" http://europa.eu.int/eur-lex/en/com/cnc/2002/com2002—0551en01.pdf.
7. General Affairs Council Conclusions,
30 September 2002: http://ue/eu.int/pressData/en/gena/72320.pdf.
8. Environment Council Conclusions, 17 October
2002: http://ue.eu.int/pressData/en/envir/72808.pdf.
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