e990506

towards a corporate accountability convention

At the September 2002 World Summit for Sustainable Development and beyond, Friends of the Earth International will be lobbying for a convention to secure the accountability of corporations to citizens and communities in today's globalized economy.

FoEI feels that governments should collaborate to establish effective international and national law on corporate accountability, liability and reporting. This must be backed by effective sanctions and citizen and community rights to consultation, legal challenge and redress over environmentally and socially damaging corporate activities. This approach goes beyond voluntary corporate responsibility initiatives to establish corporate accountability to stakeholder citizens as a legal right. It seeks to help close the democratic deficit created by corporate globalization by underlining the principles of rights, democracy and equity demanded by communities protesting against corporate globalization.

accountability now!
The duties placed on companies and expectations of how they should behave have been a topic of public debate and regulation for many decades. Although the use of legislation to constrain corporate activity is not new, new forms of corporate accountability are today more vital than ever:

• economic globalization and the growth of truly global companies means there is a tendency for constraints to be removed or relaxed;
  
• the growing scale of TNCs has consolidated economic power in the hands of boardrooms that are not subject to the accountability citizens expect;
  
• corporations are increasingly taking control of industries and services previously run by governments, without taking on the wide environmental and social responsibilities governments had to address; and
  
• the scale of corporate impacts is growing and those impacts are increasingly remote from both company owners and customers.
  

T oday, corporations are only accountable to their shareholders. Debate is growing over how corporate accountability to other stakeholders - as well as to shareholders - can be increased. The accountability corporations have to owners and shareholders is backed by detailed rules and regulations. We also need rules that spell out corporations' accountability to other stakeholders.

corporate responsibility
Employees, communities, consumers and public interest groups are raising concerns about the performance and impacts of corporations on employment practices, pollution, product safety and many other matters. The most serious concerns tend to be about corporate practices in poorer countries, where legal, environmental, health and safety standards are often low or poorly enforced.

Multinationals are exploiting natural resources in the South to feed (primarily) northern demands. This accumulates an “ecological debt” as northern countries consume more than a fair and sustainable share of the world's resources. In the fossil fuel sector, concerns have been raised about pollution, resource expropriation and human rights abuses. Cases include Exxon in Indonesia, Shell in Nigeria and Premier in Burma and Pakistan. In the forestry sector, much trade is illegal - more than half the tropical timber entering the EU is likely to be illegally sourced. Logging on indigenous peoples' lands, corruption, and felling primary forests by companies such as Asia Pulp and Paper in Indonesia are all common concerns. In the garment and toy sectors, sweatshop conditions, poor health and safety regulations and the use of child labour have been documented in suppliers for Nike and others.

Corporations' production costs are reduced by imposing (sometimes non-financial) costs on the environment or society – the so-called “externalization” of costs. They have an incentive to do this because they are judged by shareholders on how well they have maximized financial returns, be this within or (for example with corporations profiting from retailing illegally-sourced timber) outside the law. A few corporations make a virtue of internalizing costs, believing this voluntary “corporate social responsibility” enhances their brand and provides a competitive edge. Such a strategy works for corporations that have become relatively accountable to their customers, but it works almost as well for some as a veneer of marketing hype disguising a grim reality.

We can expect little genuine improvement in behaviour unless all companies are made equally accountable for their environmental and social impacts. What is more, those corporations wanting to become more socially responsible are held back by competitors who undercut them by externalizing costs and demonstrating no responsibility.

corporate-led globalization
Corporate globalization is the growing corporate control over resources and politics at a global scale within a neo-liberal economic framework. Corporations are active across boundaries, and often their production, sales and ownership are in different legal jurisdictions with inconsistent regulations. Corporations are often listed on stock markets (and thus effectively domiciled) in countries remote from where they operate. Changes in the legal framework in any one country can have real or perceived impacts on the short-term competitiveness of companies in that country. Corporations lobby against such regulation (and threaten to relocate), exacerbating governments' fears of economic impacts. The ability of powerful corporations to “chill” government intervention in this way is one of the most pernicious effects of economic globalization.

beyond voluntary initiatives
Corporations, governments and even NGOs have hitherto responded to the widely recognized negative impacts of corporate activity through the development of voluntary initiatives. These include the OECD's Guidelines for Multinational Enterprises and the UN's Global Compact, which appeals to signatory companies to abide by nine key principles of corporate responsibility. So far such voluntary initiatives have failed to prevent continued abuses of corporate power. There are a number of reasons why:

• they do not provide strong incentives for compliance to counterbalance the financial incentives for non-compliance;
  
• they rely on the “appearance of compliance” through “self-regulation”, without even independent verification; and
  
• they fail to empower citizens and stakeholders. Instead, even where “stakeholder dialogue” approaches are used, they present the issue of corporate responsibility as “top-down” - defined by the company or government. This inevitably cannot satisfy stakeholders, even if it reduces impacts in practice.
  

why a corporate accountability convention?
A corporate accountability convention must:

• increase incentives for TNCs to avoid negative environmental and social impacts and instead adopt responsible practices. In particular, perverse incentives to externalize costs onto society and maximize short term financial returns must be removed;
  
• establish mechanisms for adversely affected stakeholders to obtain redress; and
  
• create a market framework in which progressive companies can thrive, and governments cam respond fairly to the demands of their citizens rather than to corporate lobbying.
  

Friends of the Earth has come up with detailed recommendations for what a corporate accountability convention should include. For example, companies, their directors and board-level officers would be required to report fully on their social and environmental impacts, and these reports would be independently verified. Directors would become personally responsible for corporate breaches of national and international environmental and social laws and agreements, and could be tried in the International Criminal Court.

Prior consultation with and accountability to affected communities and the preparation of Environmental Impact Assessments would be mandated, and full public access to all relevant documentation required. Citizens and communities would be guaranteed new rights of redress when adversely affected by corporate activities, including access for affected people anywhere in the world to pursue litigation in a company's home country and a legal aid mechanism to provide public funds to support such challenges.

The convention also covers community rights of access to and control over resources, including “the commons”(such as forests, fisheries and minerals for indigenous communities). It would address displacement and guarantee compensation or reparation for resources expropriated by or for corporations.

For such rights to be meaningful they need to be legally actionable. One useful precedent is the 1975 Land Rights Act in Australia, which gives Aboriginal peoples the right of veto over mining on their land. In practice, this has allowed them to set conditions relating to royalties, job provision and training.

The convention would also include the establishment and enforcement of 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. Sanctions would be established for companies breaching these new duties, rights and liabilities, and would include suspending national stock exchange listing, withholding access to public subsidies, guarantees or loans, fines, and in extreme cases, the withdrawal of limited liability status.

Finally, international controls over mergers and monopolies would be established, as would a continuing structure and process to monitor and review the implementation and effectiveness of the convention.

Adapted from the FoEI Briefing "Towards a Corporate Accountability Convention", December 2001.

To get involved, contact Matt Phillips, FoE England, Wales and Northern Ireland, mattp@foe.co.uk.