LEX SUSTINEO

New principles on business and human rights endorsed by United Nations

2011-07-18T10:11:00.000-07:00

The United Nations Human Rights Council has endorsed the recommendations of the report of John Ruggie, the Special Representative of the United Nations (“UN”) Secretary-General on human rights and transnational business (United Nations Document A/HRC/17/31) – with significant implications for global human rights responsibilities of business.

The Report came out of the Special Representative’s comprehensive research and investigation of human rights issues over the course of six years. It is also based on extensive consultation with all stakeholder groups, including governments, business enterprises and associations, experts in law and policy, and individuals and communities directly affected by the activities of business enterprises in various parts of the world.

The Report has significant implications for global business practices as it represents a concerted effort to consolidate and codify international customary and legal expectations with respect to the human rights practices of business.

The guiding principles and the “Protect, respect and remedy” framework

The main purpose of the Guiding Principles is to determine ways in which businesses, governments and citizens can work within the “Protect, Respect and Remedy” Framework endorsed by the UN Human Rights Council in 2008. The Framework was designed to ensure that corporations and states comply with their human rights obligations in the context of transnational business.

The three pillars of the “Protect, Respect and Remedy” Framework are:

The state’s duty to protect human rights;
The corporate responsibility to protect human rights;
The need for greater access to remedy for victims of business-related abuse.

The Guiding Principles are organized under these three pillars. The Guiding Principles perform three main functions. First, they dictate the steps that governments should take to foster corporate respect for human rights. Second, they provide a “blueprint” for companies to “know and show” that they respect human rights, and outline how businesses can reduce the risk of furthering human rights abuses. Third, they act as a set of benchmarks for all stakeholders to gauge business respect for human rights.

Practically speaking

The Guiding Principles suggest practical ways in which human rights goals can be achieved. Though they do not create new international law obligations, the Guiding Principles do elaborate on, integrate and explain the implications of existing standards and practices for states and businesses in a cohesive set of rules. They contain detailed directions for both business enterprises and states to promote compliance with international human rights instruments.

Because states are the primary duty-bearers under international human rights law, the Guiding Principles put the onus on governments to enforce human rights obligations in the business realm. That being the case, the Guiding Principles also move beyond a focus on state obligations and emphasise the responsibilities of corporations to conduct diligence to ensure they are respecting human rights at home and abroad.

Implications for business

Some of the suggestions set out in the Guiding Principles for business enterprises to meet their human rights obligations include:

Business enterprises should avoiding infringing on internationally recognized human rights and should address adverse human rights impacts with which they are involved and which could violate the Universal Declaration of Human Rights (including the International Covenant on Civil and Political Rights and the International Covenant on Economic, Social and Cultural Rights) or the International Labour Organization’s Declaration on the Fundamental Principles and Rights at Work;

Business enterprises should have in place a policy regarding human rights, approved by senior management, informed by expertise, communicated to personnel and business partners, and reflected in operational policies and procedures;

Business enterprises should have in place a human rights due-diligence process to prevent, mitigate and account for how they address their adverse human rights impacts;
Business enterprises should identify, assess, integrate findings, and track the effectiveness of responses to outcomes of any human rights due-diligence process;
Business enterprises should treat the risk of causing or contributing to gross human rights abuses as a legal compliance issue wherever they operate;
Business enterprises should establish or participate in effective non-judicial, operational-level grievance mechanisms for individuals and communities who may be adversely impacted by their operations; and
Business enterprises employing non-judicial grievance mechanisms should ensure those mechanisms are: legitimate, accessible, predictable, equitable, transparent, rights-compatible, a source of continuous learning, and based on engagement and dialogue.

Implications for states and governments

Some of the rules for states and governments presented in the Guiding Principles include:

That governments must set out clearly the expectation that all businesses domiciled in their jurisdiction must respect human rights in their territory and abroad;
That states should legally regulate businesses more aggressively to ensure compliance with international human rights instruments (this could include reporting requirements for human rights similar to those in place under corporate or securities laws);
That human rights due-diligence requirements be put in place for any agency linked formally or informally to the state, including any corporation associated with or providing goods or services to government bodies or their affiliates;
That governments assess how their agencies can reinforce corporate compliance with human rights obligations; one effective enforcement mechanism may be to deny access to public support and services for a business enterprise that is involved with gross human rights abuses if the business refuses to address the situation; and
That governments incorporate human rights policies into investment treaties, free-trade agreements and contracts for investment projects.

Conclusion

With the endorsement of the Guiding Principles by the UNHRC, the international obligations of corporate actors in matters of human rights have been clarified. In light of this codification of best practices and customary and legal expectations, it will become increasingly important for businesses to be aware of the human rights law provisions they must take into consideration when operating at home and abroad. Human rights diligence should be part of legal compliance reviews for transnational business – from project financing to operational management. It will be imperative for companies with operations in more sensitive jurisdictions, such as conflict-affected areas, to include human rights considerations as part of their legal due diligence. Governments of all states are under increasing legal pressure to aggressively and scrupulously enforce international human rights instruments, which may involve legislating, regulating, monitoring or the use of “soft law” policies and guidelines on businesses to ensure compliance with their own obligations under international human rights law. A proactive approach will help to avoid legal and reputational risks that can affect the viability of transnational business efforts.

The Ruggie Report can be found on the United Nations Website at:

http://www.business-humanrights.org/media/documents/ruggie/ruggie-guiding-principles-21-mar-2011.pdf

Footnotes

1 Office of the UN High Commissioner for Human Rights Website, http://www.ohchr.org/en/Issues/TransnationalCorporations/Pages/SRSGTransCorpIndex.aspx.

2 Office of the UN High Commissioner for Human Rights Website, http://www.ohchr.org/en/Issues/TransnationalCorporations/Pages/SRSGTransCorpIndex.aspx.

Case profile: AngloGold Ashanti silicosis lawsuit (So. Africa)

2011-04-13T14:33:00.000-07:00

In October 2006, a South African gold miner named Thembekile Mankayi sued AngloGold Ashanti, his former employer, stating that he developed the lung disease silicosis while working in Vaal Reefs mine. The lawsuit, filed in the Witwatersrand Local Division of the High Court of South Africa, sought R2.6 million in compensatory damages. Mankayi alleges that AngloGold Ashanti failed to meet its responsibility to provide its employees with a safe and healthy work environment under both South African laws and an employer’s common law duty of care to its employees. AngloGold Ashanti responded that Mankayi is precluded by law from making the claims he set forth in his lawsuit. Under South Africa’s Compensation for Occupational Injuries and Diseases Act (COIDA), workers or their families may not sue an employer for injury or death incurred at the workplace. Instead, the compensation commission considers these claims. But Mankayi’s claims of AngloGold’s negligence can only be heard in a court of general jurisdiction, not by the compensation commission.

In addition, mineworkers’ lung diseases are covered under the Occupational Diseases in Mines and Works Act (ODMWA), which limits a mineworker’s compensation for illness due to working conditions to just a fraction of that awarded under COIDA (plaintiff’s counsel estimates that the payout is about a tenth of what it would be under COIDA). The size of Mankayi’s claim challenges the limitations on compensation under ODMWA. The South African Parliament is currently considering revisions to the law to address the disparity between the remedies available to workers under COIDA and ODMWA.

On 26 June 2009, the High Court of South Africa, Witwatersrand Local Division, issued a decision in this case. The court ruled in AngloGold Ashanti’s favour, holding that Mankayi was statutorily barred from making his claim. In March 2010, the Supreme Court of Appeal in Bloemfontein heard Mankayi's appeal of the lower court's ruling. On 31 March, the Supreme Court of Appeal upheld the High Court's ruling. The plaintiff's appeal to the Constitutional Court of South Africa, and this court reversed the lower court's ruling and ruled in favour of Mankayi on 3 March 2011. Mr Mankayi died of lung disease on 25 February 2011.

Article found on Business & Human Rights Resource Centre website.

Globe & Mail - For Canadian companies overseas, a corporate heart of darkness

2011-03-23T12:10:00.000-07:00

Article questioning whether Canada is doing enough to legislate CSR practices of Canadian companies operating abroad.

Child labour-free cocoa ‘almost impossible,’ Nestlé head says

2011-03-23T12:08:00.000-07:00

According to a report on the cocoa trade by the International Labour Organization (read the PDF here), an estimated 200,000 children, under the age of 18, were engaged in child labour in the Ivory Coast in 2002.

But Mr. Brabeck-Letmathe’s latest comments seem to suggest that eradicating child labour is neither realistic, nor particularly helpful.

“If they have the access to good schooling, then the child labour as such, if it is helping the fathers in the field and helping with the harvesting, I don’t think this is a problem,” he said, according to Reuters. “The problem is when you use the children only for that and don’t allow them to go to school.”

See Globe & Mail Article Here

Professor Kernaghan Webb, "CSR & the Law: Learning from the Experience of Canadian Firms in Latin America."

2011-03-09T06:22:00.000-08:00

On Friday, October 29, Professor Kernaghan Webb delivered a lecture on the above subject, as part of the Ryerson Institute for the Study of CSR/Federal Extractive Sector CSR Counsellor Public Seminar Series, at Ryerson University in Toronto.

This particular talk was also co-sponsored by the Ryerson Law Centre. Based on research he is conducting, Dr. Webb’s presentation reviews current CSR-oriented legal disputes involving Canadian mining companies in Latin America, as a way of highlighting challenges associated with the legal regime, and opportunities for proactive environmental, social and economic practices by Canadian mining firms that can go some way towards reducing the likelihood that future legal issues will arise with respect to their operations.

The webcast (approx 1.5) is available for download HERE

SEC weighs forcing disclosure over ‘conflict minerals’

2010-12-15T11:44:00.001-08:00

Thousands of companies could be forced to reveal the source of metals and ores they use under a proposed U.S. rule aimed at cutting the flow of money to armed rebels in the Democratic Republic of Congo. See full article in the Globe & Mail here.

IFC Environmental & Social Performance Standards in Project Financing

2010-11-26T13:03:00.000-08:00

The International Finance Corporation Environmental & Social Performance Standards (“IFC Standards”) has become the global benchmark for corporate social responsibility (“CSR”) in project financing. While the IFC Standards originated in relation to projects financed by the World Bank, they are now used by all financial institutions around the globe that have signed on to the “Equator Principles”, accounting for over 90% of global project finance. This makes the IFC Standards a “must know” for strategic leadership of multinational corporations interested in maintaining access to capital for their international projects.

WHAT ARE THE IFC STANDARDS?

The IFC Standards establish a private regulatory framework in respect of labour and working conditions; environmental practices; workplace health & safety; community health, safety and security; land acquisition and involuntary resettlement; relations with indigenous communities, and; preservation of cultural heritage. In addition to the express guidelines of the IFC Standards themselves, adherents must meet the requirements of local and international laws in these areas, regardless of whether such laws are regularly or consistently enforced by local governmental institutions. In this way, the IFC Standards require a corporation to go beyond minimum compliance with laws and regulations in the conduct of their operations, where such laws and regulations fall below the IFC Standards.

Adherents to the IFC Standards must establish a Social & Environmental Assessment and Management System. This requires companies and/or financial institutions to undertake assessments of the social & environmental impacts, risks and opportunities of projects; engage with local communities, disclose necessary information, create grievance resolution mechanisms, and manage the social & environmental risks throughout the life of the project.

An Action Plan for the project must be established based on consultation with stakeholders, describing how risks will be re-mediated and the IFC Standards implemented. Implementation of the IFC Standards typically necessitates their integration into corporate policies, practices and procedures; the development of organizational capacity through training of personnel; and the delegation of effective authority throughout the organization to ensure compliance and enforcement.

Community and stakeholder engagement, disclosure and consultation are requested by the IFC Standards and necessitate communication and dialogue between those undertaking the project and the members of the community affected by it. Engagement efforts should be oriented towards dialogue regarding the risks of the project and the needs and concerns of the local community.

Disclosure regarding project risks and public reporting on the implementation of the Action Plan is also required in the implementation of the IFC Standards. Monitoring of the project and ongoing risk assessments must also be done through the life of the project to ensure compliance with the IFC Standards at each phase.

HOW ARE THE IFC STANDARDS ENFORCED?

The IFC Standards are designed to operate through the Social & Environmental Management System (“SEMS”) established for each project as a system of self-regulation. It is typically left up to corporations themselves to implement the IFC Standards and monitor risks for each project.

Equator Principle Financial Institutions commit to applying the IFC Standards in all financed projects, and thus bear the burden of ensuring adherence. That being the case, it is quite common for lenders to require the borrowers to make covenants in relation to the implantation of the IFC Standards in respect of a project, thereby placing obligations on the borrower through contractual terms. Such terms could be enforced through the courts in the same way as any contractual provision. Violation of such covenants may be considered an event of default leading to acceleration of the loan, or equity disinvestment by the financing institution.

An SEMS, whether implemented by the lender or the borrower, requires the establishment of grievance mechanisms which act as a dispute resolution mechanism for the project vis-à-vis affected communities. The World Bank has established such a mechanism called the “Compliance Advisor Ombudsman”, which (as the name implies) is an Ombudsman office that takes complaints from interested parties and attempts to resolve disputes by reference to the IFC Standards. Grievance mechanisms within multinational corporations operate in a similar manner, and allow the company to identify and address concerns of affected stakeholders.

In an interesting development, the IFC Standards have become the endorsed performance standard used by the Government of Canada’s CSR Counsellor for the Extractive Sector (the “CSR Counsellor”), which has been established as a type of grievance mechanism applicable to the international operations of Canadian mining and oil & gas companies. The CSR Counsellor represents one of the first forays by a State government to monitor the implementation of the IFC Standards across a certain industry. This approach may be a vanguard for similar mechanisms elsewhere, affecting not just the financial sector but also mining and oil & gas operations or other industries. Such developments suggest that the importance of the IFC Standards as a benchmark for CSR is growing in importance.

ARE THE IFC STANDARDS MANDATORY?

The IFC Standards are binding to the multinational corporations that have chosen to adhere to them in carrying out their transnational operations. While the decision to adhere to the IFC Standards may be “voluntary” in the sense that it is not compelled by government in most circumstances, it may be required for business reasons including to ensure market competitiveness or access to capital, or to fulfill contractual obligations. The IFC Standards constitute a system of transnational rules created by private actors in response to the demands of the marketplace and administered through self-regulation.

Whatever the reason for adoption, once multinational corporations have agreed to implement the IFC Standards and have made public commitments to do so and incorporated the IFC Standards into contractual agreements, it is reasonable to conclude that IFC Standards create obligations of a legal nature for multinational corporations.

In light of this, it is essential that project financing involving the IFC Standards be the subject of due diligence and planning involving legal counsel. Covenants requiring adherence to the IFC Standards can have serious implications for both borrowers and lenders, and as such necessitate consideration with legal counsel during the diligence phase of project finance and throughout the life of the project.

IFC STANDARDS AND LEGAL RISK MANAGEMENT

It is clear that the adoption of the IFC Standards requires a corporation to go beyond minimum legal compliance and towards best practices in their transnational operations. As such, it is essential that legal counsel understand that the corporate objective that drives CSR practices transcends minimal legal compliance.

Despite the transnational and private nature of the IFC Standards, in-house counsel and strategic management should not conclude that their implementation in relation to financed projects is purely voluntary or non-legal. On the contrary, the IFC Standards are derived from the requirements of State based and international laws in the areas of environment, labour & employment, health & safety, indigenous relations, and human rights, and therefore require understanding of such legal standards in their implementation. As well, the disclosure, public consultation and engagement requirements of the IFC Standards give rise to both political and legal risks for the corporation that must be addressed with sound legal management.

The key for the strategic leadership is to balance the implementation of CSR best practices with a cogent strategy for legal risk management and compliance practices. Doing so effectively will ensure both access to capital, preservation of corporate reputation and the minimization of legal and other social risks arising from global projects of the multinational company.

Canada’s CSR Counsellor: Open for Business

2010-11-22T15:44:00.000-08:00

The Office of the Extractive Sector Corporate Social Responsibility Counsellor (“CSR Counsellor”) opened for business on October 20, 2010. This new Government of Canada dispute resolution mechanism represents an important and very unique development affecting the legal and risk management practices of Canadian mining and oil & gas companies doing business abroad.

MANDATE AND OBJECTIVES

The CSR Counsellor is an appointee and advisor to the Government of Canada’s Minister of International Trade. The CSR Counsellor’s office was created and defined by a Parliamentary Order in Council.

In essence, the CSR Counsellor’s office will serve as a dispute resolution mechanism similar to that of an ombudsman. The scope of the CSR Counsellor's mandate extends to all Canadian (incorporated or head office in Canada) mining and oil & gas companies with operations outside of Canada.

The role was established in 2009 as part of the Government of Canada’s CSR Strategy for the International Extractive Sector, aimed at the promotion of best practices in Corporate Social Responsibility amongst Canadian oil & gas companies. Broadly speaking, the strategy is designed to help Canadian mining, oil & gas companies meet their “social” (including employment & labour, health & safety, human rights, community relations, aboriginal issues) and environmental responsibilities when operating abroad, in order to preserve and improve upon the reputation of the industry and maintain access to international markets.

The first appointee to the role is Marketa Evans. Dr. Evans has a background in international relations and is the former Executive Director of the Munk School of Global Affairs at the University of Toronto, and Director of Strategic Partnerships at Plan Canada. She is widely regarded as an expert in corporate social responsibility.

The CSR Counsellor is required to apply a set of international standards relating to the social and environmental practices of companies. The expressly endorsed standards to be applied by the CSR Counsellor include the International Finance Corporation Environmental and Social Standards (the “Performance Standards”), the Voluntary Principles on Human Rights and Security, and the non-financial reporting frameworks of the Global Reporting Initiative.

A Request for Review can be accepted by the CSR Counsellor from any person or community (or their representative) in the world (outside of Canada) who “reasonably believes” that they are being or may be adversely affected by the operations of a Canadian extractive sector company, contrary to the performance guidelines that the CSR Counsellor is required to apply. Canadian extractive companies can also bring matters forward if they believe they are the subject of unfounded allegations concerning their corporate conduct in relation to the applicable standards.

RULES OF PROCEDURE

Rules of Procedure have been established setting out the procedure to be followed once a “Request for Review” has been submitted to the CSR Counsellor.

Once received, a Request for Review will undergo an “Initial Assessment” phase and screening process. A preliminary determination of “eligibility” will be made by the CSR Counsellor, based on considerations such as the amount of time that has elapsed (complaints must be related to incidents occurring on or after October 19, 2009); the nature and seriousness of the issue; whether the request was made in good faith; whether other processes have been exhausted; and whether the issue is substantiated.

Following the Initial Assessment, the parties will be invited to undertake an “Informal Mediation” which may involve information gathering, research, the engagement of experts, discussions and efforts at conciliation. A “Trust Building” exercise may follow, to permit the parties to provide context to the issues raised. The express written consent of the parties will be required to undertake the Informal Mediation, which may be withdrawn at any time with notice. As the process unfolds, terms of reference will be created in collaboration between the parties and the CSR Counsellor, and expressed in a Letter of Intent. If “no progress” is made at this point the CSR Counsellor may terminate the process at their discretion. If “some progress” is made, the CSR Counsellor will continue to engage as appropriate. If “progress” is made the CSR Counsellor may move to a “Structured Dialogue” phase. If the process ends, a “Final Report” will be released by the CSR Counsellor.

If undertaken, Structured Dialogue will involve further efforts at consultative discussion aimed at resolving the dispute between the parties. This process will either result in “no resolution” whereby the process may be terminated at the discretion of the CSR Counsellor; or to formal mediation; or resolution with a set of commitments adopted by participating parties. If the process ends at this stage a Final Report will be published by the CSR Counsellor. If formal mediation will be entered into, a publicly available interim report may be made by the CSR Counsellor.

In certain cases, the CSR Counsellor may recommend a process of formal mediation conducted by an external mediator once the foregoing process is exhausted.

At the end of this Review Process a report will be issued by the CSR Counsellor. Such reports will be publicly available on the CSR Counsellor’s website and may be shared with the Minister of Natural Resources as well as with the Minister of International Cooperation. It will describe the process and the outcome, and may be used as a tool to educate the industry on best practices.

Fact finding may be undertaken by the CSR Counsellor at any stage of the Review Process. Fact finding may include the use of independent third parties, or even be conducted by the parties themselves, in order to improve understanding of the issues giving rise to the dispute, with an eye to resolution. Procedural issues and the desired way forward may also be discussed in this Review Process.

The Rules of Procedure will be in effect until October of 2012, at which time they may be subject to review.

IS THE CSR COUNSELLOR REVIEW PROCESS A LEGAL PROCESS?

While the Review Process of the CSR Counsellor is voluntary, there are inevitable business and reputation risks that would affect any company that is the subject of a Request for Review. There are also clear legal risks associated with the investigation of corporate conduct, and the public reporting of information. While confidentiality is to be respected by the CSR Counsellor, there will certainly be legal questions that will arise from the CSR Counsellor’s use and possible release of corporate information. These features ought to make the CSR Counsellor and the endorsed Performance Standards of particular importance to in-house legal counsel within the extractive sector.

The nature of the Review Process is also such that legal counsel and advice will be valuable in assisting companies to navigate Requests for Review made to the CSR Counsellor. The process, while unique in many ways, is similar to dispute resolution processes established pursuant to certain commercial contracts (such as project financing governed by the Equator Principles) and by multinational organizations like the Organization for Economic Cooperation and Development or the World Bank. The Review Process is also rather formalized and will inevitably be managed similarly to an administrative legal process, analogous to a mediation or ombudsman, and employ processes of legal reasoning to analyze and resolve disputes. As such, there are procedural similarities between the CSR Counsellor mechanism and more traditional legal processes that will be familiar to legal counsel versed in these areas.

Moreover, the CSR Counsellor’s office has been created by the Government of Canada, which has also specifically endorsed certain social and environmental performance standards that will be used to evaluate corporate conduct. While endorsement of this sort does not make the endorsed standards “binding” per se, it sets the benchmark that the Government of Canada expects the Canadian extractive sector to meet. Such endorsement will serve to encourage the internalization of such standards across the extractive industry and legitimize their use as the standard by which social and environmental performance is assessed, both by government and by other social actors.

STAY TUNED

These new developments in the formalization of Corporate Social Responsibility should be understood as having real legal implications that give rise to risks and opportunities for the corporate organization. While in its infancy, the evolution of the CSR Counsellor’s office should be of great interest to legal and compliance personnel across the Canadian extractive industry. To mitigate risks and capitalize on opportunities as they emerge it will be important to monitor the development of this new process and also to be mindful of other new efforts to operationalize the Government of Canada’s CSR Strategy for the Extractive Sector.

Watch this space.

Persuasive Authority Beyond the State

2010-10-27T05:55:00.000-07:00

A Theoretical Analysis of Transnational Corporate Social Responsibility Norms as Legal Reasons within Positive Legal Systems

I've uploaded a recently completed paper on the incorporation of transnational and private CSR norms into legal systems here. Comments and critique would be appreciated.

CSR counsellor opens shop in Canada as Bill C-300 vote looms

2010-10-26T14:06:00.001-07:00

Canada's new Corporate Social Responsibility (CSR) Counsellor for the extractive industries officially opened her doors on Wednesday, just one week before Members of Parliament (MPs) vote on a contentious piece of legislation aimed at improving the behaviour of Canadian mining companies abroad. See full article in the Mining Weekly here.

Industry Comments on draft CSR Procedures

2010-10-21T08:35:00.000-07:00

A group of industry leaders including PDAC has sent a number of recommendations to the Government of Canada's CSR Counsellor as part of a consultation process in respect of the CSR Counsellor's Rules of Procedure. The submission can be found here.

CSR: Perspectives in the Mining Sector in Peru

2010-10-05T10:23:00.000-07:00

Information on the CSR Counsellor Website:

DATE: October 26, 2010

TIME: 11:45 - 14:00
PLACE: Ogilvy Renault Royal Bank Plaza - South Tower 200 Bay Street - Suite 3800 Toronto, Ontario

FEES: PCCC Members - $50

Non-members - $75
(includes lunch)

THEME: Peruvian-Canadian Chamber of Commerce (PCCC)'s Luncheon Seminar Series

HIGHLIGHTS

The Peruvian-Canadian Chamber of Commerce (PCCC) recognizes the importance of CSR and invites you to a multi-stakeholder dialogue where representatives from the Government of Peru, Canada, Mining Industry and others will share their views and experiences about this important matter.

This event is being sponsored by PCCC's Leadership Member, OGILVY RENAULT - one of Canada's leading full-service law firms, which has the experience and resources to advise Canadian and international clients with domestic and global mining interests.
Guest speakers:

Walter Casquino: President, INGEMMET- Ministry of Energy and Mines, Government of Peru
Marketa Evans, PhD: Extractive Sector CSR Counsellor, Government of Canada
Ross Gallinger: Senior Vice-President, Health, Safety & Sustainability, IAMGOLD
Kevin D’Souza: Director, Community Affairs, Barrick Gold
Michael Torrance: Lawyer, Corporate Responsibility & Sustainability, Ogilvy Renault
Louis Vos: Senior Investment Officer, Global Mining Group-Caribbean and Latin America, IFC, Washington
Facilitated by: Andrea Mandel-Campbell (Co-Anchor BNN)

ORGANIZED BY

Peruvian-Canadian Chamber of Commerce (PCCC)

CONTACT INFORMATION

Jim Louttit
Email: jvlperu@gmail.com

Corporate Responsibility as Legal Risk Management

2010-09-13T12:28:00.000-07:00

Corporate Responsibility (“CR”) has been referred to as a form of “self-regulation in the shadow of the law.” It is aimed at the management of social expectations between corporate organizations and their stakeholders, most notably in the areas of environment, health and safety, employment, human rights and community relations. While CR may often be voluntarily adopted by corporate organizations, it can and should be seen to serve as an extension of sound legal management, aimed at mitigating legal and other social risks for the business organization.

There are many business reasons to adopt a CR mandate aimed at compliance with social expectations beyond the minimum prescribed by law. The maintenance of a social licence to operate, which can be defined as a practical ability to operate within a particular market, may necessitate that a corporation act in a manner consistent with social expectations, whether or not such expectations are contained within the legal requirements of the State. In this way, CR presents itself as much more than simply aspirational objectives. It implies obligation, which is evidenced by the consequences many businesses have experienced when they have been deemed irresponsible.

But even accepting that CR is something much more than an aspirational objective, there is nevertheless a tendency of corporate leaders, and lawyers, to view CR as something distinct from or unrelated to legal expectations. Perceptions aside, closer examination reveals that CR expectations are highly intertwined and related to formal legal obligations.

The many faces of CR

From the perspective of corporate governance, corporate directors are often held to legal standards of care, skill and loyalty that can require effective implementation of CR practices. In fulfillment of this duty, senior executives may be required to certify internal controls that assure the identification of material social risks to the organization. Moreover, materiality based reporting requirements may necessitate corporations to disclose such risks to the extent that they may affect a company’s financial prospects. Policies and practices in respect of the environment, health and safety, employee relations, and consumers undoubtedly give rise to risks that fall within the scope of these obligations.

A growing consensus is also emerging in the investment community that the risks (both legal and reputational) presented by CR issues areas are material to the long term viability of the corporation. Fund trustees are often subject to higher fiduciary standards including, for example, a duty of impartiality, which requires them to identify, respect and balance the various interests of different participant and beneficiary groups. The international understanding of investment manager fiduciary duties has been expanding to include the permissibility of CR considerations when making investment decisions. Research suggests that taking CR considerations into account in investment analysis is clearly permissible at law in many jurisdictions, or even required as part of an investment manager’s fiduciary duty.

Aside from these governance related drivers of CR, there are other avenues by which CR practices will acquire legal relevance. For example, CR related standards in the areas of environment and health and safety have been used to inform concepts like standard of care relevant to the question of tort liability. The implementation of and adherence to internationally acceptable standards of CR can be useful in establishing defences to allegations of wrongdoing. This can include in relation to regulatory offences that impose strict liability, where penalties or sanctions can only be avoided by demonstrating due diligence, which can be shown where industry standards or best practices, including best practices in relation to CR, have been followed.

In business relationships, adherence to international CR standards may become incorporated into contracts amongst business partners. Where this occurs, there arises the possibility of legal enforcement of contractual agreements regarding adherence to CR expectations.

At the international level, emerging customary expectations in the area of human rights require companies to go beyond minimum compliance with local laws, particularly where such laws are not likely to be enforced by local government. On these standards of conduct, corporate actors may be responsible for complicity in human rights abuses committed by partners through the corporate supply chain, or even as a result of contractual relationships or between the corporate actor and sovereign governments. Civil or even criminal liability (local or international) and social disapprobation affecting corporate reputation may result from complicity by the corporation in human rights abuses which were foreseeable and ought to have been known and avoided by the company.

In these ways, the voluntariness of CR practices reveals itself as somewhat illusionary. Failure to adhere to generally accepted CR best practice can be the basis of legal liability. Moreover, adherence to CR best practices offers a persuasive and justifying reason to avoid legal consequences where corporate conduct is challenged. In light of these legal implications of CR practices, it is clearly essential that CR management be viewed as part and parcel of effective legal risk management more generally.

The drafting or adoption of voluntary codes of conduct in CR areas is, therefore, not a question of public relations or marketing. Instead, it is a matter of corporate governance that may eventually be determinative of legal compliance.

CR strategies—Where to start

Among the first questions corporate leaders must consider in implementing an effective CR/legal risk management program is how to identify standards of behaviour that can be used in corporate governance. There are a wide array of—and often competing—CR related standards to choose from. Among these are the Environmental and Social Standards of the World Bank, the International Standards Organization ("ISO") Environmental Standard 140001 and Social Responsibility Standard 26000, as well as multiple international customary and legal instruments affecting employment and human rights practices. Considerations may include the industry or jurisdiction of the corporate organization, the expectations of stakeholders such as suppliers, customers or business partners, or contractual obligations.

For example, businesses in the garment industry have generally adhered to the international frameworks established by the Fair Labour Association, particularly in light of customer expectations and encouragement from government. The financial sector has widely adopted the Environmental and Social Standards of the World Bank, through the multilateral agreement reached in the Equator Principles. The mining and oil and gas industries are increasingly adherent to the Voluntary Principles on Security and Human Rights, as endorsed by the United Nations and several governments.

Companies may also decide to participate in the development of CR standards and best practices, or to engage stakeholders in the management of CR issues. This can include the establishment of grievance mechanisms, which provide internal processes for the investigation of complaints regarding CR issues, to resolve concerns before they grow into a more adversarial dispute. The objective is for the corporate organization to take proactive steps to address social risk beyond adherence to the express requirements of traditional legal authorities. In so doing however, the corporation mitigates legal risks that may flow from social conflicts.

Two sides of the same coin

The objective of each of these strategies is to ensure that the corporate actor is operating to the greatest extent possible in compliance with social expectations, so as to mitigate social and legal risks to the organization. This necessitates dealing with CR and legal compliance as overlapping and interrelated objectives within the corporate organization, as two sides of the same social risk management coin.

CSR Counsellor Releases Draft Rules of Procedure

2010-08-27T15:02:00.000-07:00

The legal and governance framework for the Government of Canada's CSR Counsellor for the Extractive Sector is taking shape, with the release of draft rules of procedure for the intake and administration of complaints.

The CSR Counsellor's mandate is being developed with Bill C-300 (which would create a binding adjudicative regime, as opposed to an ombuds office) in the background, and as such these draft rules have a particularly "administrative law" flavour that may reflect an intention to make the complaints process as formalized as possible - possibly to compete with the mechanism proposed in Bill C-300. The Counsellor's mandate extends to all Canadian (incorporated or head office in Canada) mining and oil and gas companies with operations outside of Canada. This role was defined by a Parliamentary Order in Council, whereby the CSR Counsellor (Marketa Evans) was appointed advisor to the Minister of International Trade.

The draft rules are expressly said to be part of a "dispute resolution mechanism" which remains "voluntary" but can have "signficant reputational impacts, particularly when public reporting is included in the process". The draft rules are based upon international best practice in non-judicial grievance mechanisms and draw upon the findings of the "BASESwiki" which has been developed by the Business and Human Rights Resource Centre in consultation with civil society organizations and which is associated with the office of John Ruggie, Special Representative to the Secretary General of the United Nations.

The draft rules refer to the use of international standards including the International Finance Corporation Environmental and Social Standards as part of the standards against which behaviour will be assessed (along with the Voluntary Principles on Human Rights and Security and the Global Reporting Initiative). However, according to the draft rules, complaints may be made without direct reference to the international standards against which the complaint will be assessed. It will be interesting to see how these rules are applied in the dispute resolution process. It appears as though such standards will serve as the benchmark for appropriate behaviour and therefore guide the deliberations of the Counsellor's office in the fulfillment of their mandate.

A prima facie dismissal mechanism is provided for complaints that are "frivolous, malicious, trivial or generated to gain competitive advantage". As well, procurement disputes, matters involving allegations of crime or corruption, projects that are completed or two years old, fraud, personnel matters, or other issues that are outside of the mandate of the Counsellor, or for which legal proceedings have already been commenced.

Following intake, an "informal mediation and fact finding" will occur, which may involve information gathering, research, site visits, and the engagement of experts. At the end, a "letter of intent" may be generated that will govern the process going forward. The process may be ended at the discretion of the Counsellor at this stage "if no path forward appears possible". Public reports will be issued at this stage. Such reports will be shared with the Minister of Natural Resources as well as with the Minister of International Cooperation if it is relevant to that office. Public statements will be issued after each review and in the form of an annual report.

Outcomes could include recommendations for improvement and provision of formal mediation or mediated outcomes. A monitoring framework may be implemented to "ensure parties respect the outcomes".

In all, the draft rules suggest a very unique process that would be among the first of its kind promulgated directly by a State, rather than as a private process, or a multinational process such as that offered by the OECD or the World Bank. The draft rules also suggest that the process will be managed similarly to an administrative law process of adjudication. This will make it of particular interest to in house legal counsel within the extractive sector.

Rough Consensus - Running Code: A Theory of Transnational Law

2010-08-19T07:29:00.001-07:00

Interesting new book by Osgoode Hall Law Professor Peer Zumbansen. Article found here.

Canada CSR counsellor wraps up consultations on procedure

2010-08-07T10:16:00.000-07:00

Written and edited by Liezel Hill, published online for Mining Weekly here.

7th August 2010

TORONTO (miningweekly.com) – Canada's new corporate social responsibility (CSR) counsellor for the extractive industries Marketa Evans has completed public consultations on a review mechanism that will direct the way her office operates, according to a statement issued on Friday.

The CSR counsellor position was created by the federal government in October last year, with a mandate to review CSR practices of Canadian companies outside of the country, and advise firms on recognised best practices.

Workshops and meetings were held in Calgary, Mexico, Ottawa, Montreal, Mali, Senegal, Vancouver and Toronto, and a web conference took place in early July, Evans said.

Written submissions will still be accepted until August 13, and the next step will be the drafting of a final report on the consultations.

A number of legal issues have been raised over the mandate given to the CSR counsellor's office, and advice is being sought from legal experts as well as lawyers in the federal government. These inputs will also be reflected in the final rules of procedure document.

Evans is aiming to have the rules of procedure for reviews conducted by her office ready for recommendation to the Minister of International Trade by September 7.

“We anticipate therefore to launch the process at some point in the fall,” she said.

Evans told Mining Weekly Online in May that it was important that the rules of procedure are clear and detailed, to increase the chances that the mining industry will participate in what is effectively a voluntary review process.

“Our objective is to build a useful, constructive mechanism which will act as an honest broker, fostering constructive dialogue and problem solving to resolve disputes which relate to the international operations of Canadian oil, gas and mining companies,” she said in Friday's statement.

Some politicians and non-governmental groups have criticised the CSR counsellor role as toothless, advocating instead the controversial Bill C-300, tabled by Liberal Member of Parliament John McKay, which seeks to give the Canadian government the right to investigate complaints of environmental or human rights offences by Canadian-based firms overseas, and to withhold public money from companies found to have breached CSR standards.

Corporate Social Reporting Initiative - Report to Minister of Finance

2010-07-21T06:37:00.000-07:00

A final report to the Ontario Minister of Finance regarding reporting on "social" sustainability issues that I have co-authored has been published and can be found here:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1632992

Lawyers Weekly: Global business requires due diligence on human rights

2010-07-21T06:32:00.000-07:00

An article by Donalee Moulton of the Lawyer's Weekly:
The Lawyers Weekly

Vol. 30, No. 11

(July 16, 2010)

FOCUS ON BUSINESS LAW

Doing business in the global marketplace means adhering to human rights legislation in a myriad of countries. Savvy companies are doing their due diligence in an effort to avoid legal problems, protect their reputations and send an important message to employees and customers.

In fact, said Michael Torrance, a lawyer with Ogilvy Renault LLP in Toronto, "human rights due diligence is an issue of growing importance for multinational business."

Here's why. First, Torrance noted, "the marketplace, including individual consumers and business partners, are increasingly demanding that those they do business with are not involved in human rights violations."

"There is always a chance of reputational risk," stressed Connie Reeve, a partner with Blake, Cassels & Graydon LLP's Employment & Labour group in Toronto.

That risk is elevated in virtual reality. "There have been enough examples of companies that have been embarrassed because they have a branch in less privileged parts of the world where children are working, people are working terrible hours[...]. There can be terrible public relations effects when this happens," said Karen Bock, a partner in the Employment & Labour Group at Davis LLP in Toronto.

There can also be money problems. "Investors, particularly institutional investors, are beginning to consider so-called 'social risks' in making investment decisions," noted Torrance. "Due diligence in respect of human rights is seen as a method of social risk management, which can make a company more favourable to investors."

Avoiding problems starts by making a commitment to compliance visible. "The most basic thing a company should have is a policy that expresses their views with respect to discrimination and harassment," said Reeve.

That policy will need to be reviewed as companies move into new territories, noted Bock. "It's rare that you find policies that are one-size-fits-all."

For example, she said, how equal opportunity is dealt with in the U.S. and Canada can be quite different. "Many U.S. companies are required to collect diversity information from employees. In Canada, it's almost the exact opposite approach, and [companies] may run into trouble if they require employees to report that information."

Companies will need to ensure their policies are compliant in the country, state or province in which they are operating. For many companies, their general human rights policies will provide a solid foundation on which to build. "The [general] policies often set a high bar and do not require a lot of revision," said Reeve.

Having a policy is an important step. "The employer, by having a written policy, is saying this matters," said Bock. But "the best companies go beyond having a policy. They train their managers. Some also have hotline numbers [for employees] to reach beyond the local area," noted Reeve.

At its core, noted Torrance, "due diligence involves ascertaining what risks exist, and mitigating such risks through the implementation of policies, practices, and procedures regarding human rights. This process allows a company to act intelligently and consistently, and reduces the likelihood that employees will make decisions that do harm to the company's reputation."

Due diligence requires companies to inform and educate their employees. It also requires them to enforce policies. If they don't, the courts may do it for them. Such legal accountability is a third driver in the area of human rights and due diligence.

Torrance, who writes a blog on corporate social responsibility, noted that the law often has not kept pace with the forces of the market and non-governmental organizations. The latter have created social expectations for business and human rights that have had a real impact on business practices.

"However," Torrance said, "in some cases, the state has begun to act as a sort of 'meta-regulator' creating liability for failure to meet human rights standards, but leaving the question of compliance to self-regulation by the corporate actor itself."

There is also a strong possibility that human rights violations will be a greater focus for employees in the future. "There are likely to be more complaints as workers become more educated," said Reeve.

"From the point of view of human rights commissions across Canada," she noted, "they are always interested in whether a company has enforced their policies. It's always relevant."

In the global marketplace today, enforcement is only one aspect companies must consider. "There is also an emerging international law custom regarding 'complicity' in human rights violations that requires business to avoid contributing to or facilitating the human rights violations of third parties," said Torrance.

"Not knowing about such violations," he added, "will be no justification if the company ought to have known - meaning that they could have known if they had conducted a due diligence process."

Free Prior and Informed Consent of Indigenous Peoples

2010-06-04T17:41:00.000-07:00

The General Assembly of the United Nations have adopted in September 2007 the Declaration on the Rights of Indigenous Peoples. Since the Declaration is soft law, it is not legally binding on States, but the standards that it recognizes could, if they become part of the consistent conduct of States acting out of the belief that the law requires them to act that way, become customary law... See full article by Pierre-Christian Labeau of Ogilvy Renault here.

Whistleblower Protections & CSR

2010-05-27T07:33:00.000-07:00

An article written by my colleagues at Ogilvy Renault, John Beauchamp and Rachel Silver.

Whistleblower protection has become an important topic in corporate governance as well as corporate social responsibility (“CSR”). Legislated protections for whistleblowers means that Whistleblower programs and policies are often implemented in the shadow of state laws, and therefore part of prudent legal compliance and risk management as well as CSR strategy.

“Whistleblowing” is generally referred to as the act of an employee who reports illegal, fraudulent or corrupt activity. In 2002, legislators in the United States extended protection to whistleblowers in the Sarbanes-Oxley Act. This piece of legislation imposes criminal sanctions for retaliation against employees who inform law enforcement officials of corporate wrongdoing, and also gives such employees the right to initiate civil claims against their employers.

Various provincial and federal statutes across Canada also contain provisions intended to protect employees who provide information to law enforcement officials.

Most occupational health and safety legislation protects employees from reprisal. For example Ontario’s Occupational Health and Safety Act (“OHSA”) prohibits employers from reprisal against a worker because the worker has complied with its provisions, sought its enforcement, or given evidence in an OHSA proceeding. Employers can be penalized if found to be in contravention of these provisions.

The Canada Labour Code (the “Code”), which applies to employers under federal jurisdiction, contains similar protections for employees who give information to an inspector, testify against their employers, or have sought enforcement of the Code. Employers who contravene these provisions may be found guilty of a summary conviction offence and could be liable to a fine of up to $15,000.

Human rights legislation often contains protections for whistleblowers by prohibiting any person from threatening, intimidating or discriminating against an individual because that individual is enforcing their rights under a human rights statute.

There is also environmental protection legislation that contains whistleblowing provisions. Ontario’s Environmental Protection Act (“EPA”) provides extensive protection to employees facing employer reprisal for complying with environmental legislation (Ontario’s Environmental Bill of Rights, 1993 also contains similar protections). More specifically, the EPA provides that employers shall not dismiss, discipline, penalize, coerce, intimidate, attempt to coerce or intimidate an employee for complying with: the Environmental Assessment Act; the Environmental Protection Act; the Fisheries Act [R.S.O. 1970, c. F-14]; the Nutrient Management Act; the Ontario Water Resources Act; the Pesticides Act; the Safe Drinking Water Act, 2002; and the Toxics Reduction Act, 2009. Breaching the EPA is an offence which could give rise to a prosecution. Alternatively, an employee can complain to the Ontario Labour Relations Board, which can take any remedial action it considers appropriate (including ordering reinstatement with full back pay). Employees may also have a civil claim for lost wages and punitive damages if they are terminated for attempting to have an environmental law enforced.

Federally, the Canadian Environmental Protection Act (“CEPA”) makes it an offence for an employer to discipline, harass or dismiss an employee who, in good faith reports an alleged offence under the act, refuses to conduct activities that would be illegal under the act, or declares his or her intention to comply with the act. CEPA also contains a provision allowing a person who reports an alleged infraction under the act to request that his or her identity not be disclosed. It is also worth noting that Private Members’ Bill C-469 – An Act to establish a Canadian Environmental Bill of Rights, which recently had its first reading before Parliament, provides whistleblowing protection to employees who are employed on or in connection with the operation of any federal source or federal work or undertaking.

The Criminal Code of Canada (the “Criminal Code”) also contains whistleblower protections that are even broader than the foregoing regulatory requirements. Section 425.1 of the Criminal Code prohibits employers from retaliating, or threatening to retaliate against an employee for providing information to a person whose duties include the enforcement of federal or provincial law. The information disclosed by the employee must relate to an offence that is contrary to provincial or federal law and which the employee honestly believes has been committed by his or her employer, a company officer, director or co-worker. Violating section 425.1 may result in criminal sanctions, including the possibility of imprisonment for a term of up to five years.

Given the potential consequences businesses face for any sort of retaliation against a whistleblower, it is highly prudent to create and implement internal policies, procedures and protections with respect to whistleblowers. These may include the design and implementation of internal complaints and grievance mechanisms. Such programs are not simply good CSR practice, they may also be necessary to avoid legal liability. In this respect, the objectives of CSR should be seen to coincide with legal compliance management and mitigation of legal risks.

Torrance Top Five CSR Legal Trends

2010-05-17T14:58:00.000-07:00

In no particular order, here are my predictions for the top five CSR trends from a legal perspective:

1. Metaregulation: Metaregulation is a process of "regulating the regulators". CSR is, in essence, a process of self-regulation. Metaregulation in the context of CSR therefore entails the oversight, administration, or review of CSR self-regulation and governance processes amongst business, by States.

Whereas before CSR may have been purely "voluntary", in a circumstance of metaregulation it will not be. Companies would be expected to be "responsible" in various areas, i.e. human rights, health and safety, labour and employment practices, environment etc. The "how" of "responsibility" would not be specified however, and instead companies and industries would be expected to develop, implement, and monitor their own standards and practices. The metaregulator would oversee the process by providing incentives for good practices, or coercive sanctions for "failures".

Such systems are already and increasingly used in health and safety (for example the "due diligence" concept) and human rights. Since the businesses themselves are the "experts" when it comes to their own operations, it can be more economical and practically effective for the company to determine exactly what it takes to reach the overarching objective of the state, and other stakeholders.

In a metaregulatory environment, the role of the State authority is not to prescibe rules, but to enforce outcomes. Metaregulation epitomizes the definition of CSR as "self-regulation in the shadow of the law".

I think we'll begin to see the State's role as regulator shift from purely prescriptive to more of a metaregulator. It will also be a way to make the "soft" obligations of CSR more "hard", and therefore build upon systems for managing risk and social responsibility that already exist at the firm and industry level.

2. Adjudication Mechanisms: There is a growing demand for "accountability" and also an increasing interest amongst businesses to have fora to defend their reputations in relation to CSR. Traditional adjudicative mechanisms like courts do not often have the jurisdiction to apply non-state rules that compose CSR.

This gap in dispute resolution in some cases has in some cases been filled by internal or external dispute resolution mechanisms, such as grievance mechanisms within companies, or the Compliance Advisor Ombudsman of the International Finance Corporation. In Canada, Bill C-300 proposed the creation of a state based adjudication mechanism for CSR practices of Canadian mining companies. While the legislation may not pass, it has generated a lot of discussion and put the topic of CSR accountability front and centre in the Canadian mining sector.

I believe that adjudication mechanisms will be viewed as increasingly important, to allow for consistency in how CSR practices are assessed and understood, and to provide determinative evaluations of CSR practices. Leaving it to the market to determine whether the business practices of companies are "CSR compliant" is risky for both stakeholders and the companies themselves. Consistency will be needed if CSR assessments, auditing or compliance reviews (even those conducted by investors) are to have any credibility and be something other than completely arbitrary. Once this is realized, we can expect adjudication mechanisms to be developed to formalize and facilitate the review of CSR practices, and evaluation of complaints by stakeholders against companies. I leave open the question of what such mechanisms will look like. I suspect they may be unlike anything we've seen to date, and not necessarily linked to the State.

3. Consolidation of CSR Standards: There is a growing proliferation of CSR standards created by industries, investors and standard setters out there. They resemble one another and are often redundant. They are also often rather vague and not highly useful for a detailed understanding of what is required to do business in a socially responsible manner.

As such, I believe there will be a need to consolidate CSR standards. This will be necessary if they are to be of any real use as a guide for businesses, and if definitive assessments will be possible (i.e. adjudication). In the same way that New York no longer has several fire departments, so too will there likely not be several competing standard for CSR best practices. Such a convergence will, in a sense, give rise to an "authoritative" set of rules for CSR compliance.

That being said, convergence of standardization is well known to be problematic. It confers large amounts of power on "experts". The process of establishing an "authoritative" set of rules often marginalizes important stakeholder voices that do not have the time or resources to contribute to standard setting. It can also create risks that the standards themselves become out of date or illegitimate, thereby defeating their purpose.

I believe that these risks must be mitigated, and in so doing will result in CSR standards being very procedurally oriented and infused with stakeholder consultation requirements. As such, their contents will not (and should not) be viewed as ever "settled". Instead they should be seen as highly context specific, and centred around topics, that can be used in processes of jusitification. There will also likely be some convergence of standards as certain frameworks begin to take hold over others and experts in certain standards become more influential, thereby increasing the "authority" of such standards. Stay tuned to see which set of standards wins the day (my money is on the IFC standards so far, but we'll see).

4. Enhanced Reporting Requirements: Securities regulators are increasingly interested in full disclosure of social and environmental risks. Investors and other stakeholders are driving the demand for such information. There will be an increasing pressure on companies to disclose their practices, policies and procedures, as well as risks, in these areas in financial or non-financial reporting.

The method of compliance enforcement remains to be seen however. Again, standards and guidelines are needed. The Global Reporting Initiative seems far and away the leader in that respect. Compliance enforcement will also likely be required to "harden" the sense among business and their advisors that such reporting standards are required and not simply optional.

5. Social and Environmental Investment Standards: With increased scrutiny of business and financial sectors by governments and the public, increased importance may be placed on ensuring investments (debt and equity) mitigate social and environmental risks to the extent possible. This will mean CSR compliance reviews for potential investments, and ongoing monitoring in these areas for existing investments.

To allow for this to occur, there may be a convergence of CSR, compliance (legal/regulatory etc.) and risk management within companies that rely on such investment, meaning increasing overlap between CSR management and other functional areas, including legal, within the corporate environment.

Watch for these expectations to arise and take hold most firmly in instutional investors (i.e. banks participating in the Equator Principles, pension funds) and State based investors (i.e. sovereign wealth funds). Also watch for such investors becoming the most important players in the investment world, since the increasing importance of such investors will make compliance with their CSR expectations more significant for companies seeking investment. Such a new playing field would create financial incentives and cement the competitive advantage that flows from sound CSR practices.

Ultimately these trends feed into one another. If CSR expectations amongst institutional investors grow, then there may be increasing calls and need for definitive standards, and also adjudicative mechanisms to make proper determinations, as well as more demand for transparency amongst companies. The role of the State may evolve to be more of a "referee" than an authoritative commander of obedience. In all, these trends could well change the nature of business regulation for the 21st Century.

Globe & Mail: Loggers, environmentalists reach truce

2010-05-17T14:12:00.000-07:00

"Two long-time adversaries are expected to announce peace pact, switch to new partnership." Full article here.

Globe & Mail: Goldman Sachs to create standards committee

2010-05-07T12:01:00.000-07:00

‘We need a rigorous self-examination,’ Blankfein tells annual meetings, full article here.

International Human Rights Due Diligence: An Evolving Concept With Legal Implications

2010-04-30T07:06:00.000-07:00

Due diligence in respect of human rights risks is becoming particularly important for multinational corporations. The basis for human rights due diligence may arise from local laws, international law or custom, or the requirements of lenders and investors. Due diligence allows multinational companies to promote compliance with societal expectations and take precautions to avoid liability for human rights violations.
The purpose of this article is to review the elements of human rights due diligence for multinational corporations and discuss their legal implications.

ELEMENTS OF HUMAN RIGHTS DUE DILIGENCE

The “Protect, Respect and Remedy” framework (the “Framework”) developed by the United Nations Special Representative to the Secretary General for Business and Human Rights, John Ruggie (the “SRSG”), is the most recent effort at codification of emergent international custom on the human rights obligations of business. Due diligence is of central importance to the corporation’s duty to “respect” human rights in the Framework.

The Framework defines “due diligence” to comprise four components: 1) development of a human rights policy statement; 2) periodic assessment of actual and potential human rights impacts of company activities and relationships; 3) integrating commitments and assessments into internal control and oversight systems, and; 4) tracking and reporting performance.

The Framework builds upon international instruments including the “Norms on the responsibilities of transnational corporations and other business enterprises with regard to human rights” which adopted by the United Nations Commission on Human Rights in 2003, as well as international human rights standards encapsulated in the International Bill of Rights and other human rights treaties, the core International Labour Organization (“ILO”) treaties, as well as local laws pertaining to human rights, and the human rights laws of highly developed country legal systems.

The process of due diligence goes beyond minimal “compliance” with local laws. It instead requires a more proactive effort to comply with the letter and spirit of state laws, as well as to comply with international norms and best practice standards that define the parameters of human rights compliance, whether or not such rules are likely to be enforced by local government, or even conflict with local laws. In the event state based and international obligations conflict, corporations must be even more vigilant in their actions, and possibly reconsider their ongoing involvement in that particular jurisdiction.

HUMAN RIGHTS IN THE WORKPLACE

One of the most easily overlooked areas of human rights obligations is in the management of the workplace, and in particular the management of human resources. Discrimination in employment on the basis of gender, age or disability is prohibited by international instruments such as the ILO convention, 1958. It is also often the subject of local human rights legislation. Due diligence should include a review of internal corporate practices in respect of human resources, where perhaps the greatest likelihood of human rights violations exists.

Discrimination in employment may often be done inadvertently. Avoidance of inadvertent discrimination may necessitate efforts to accommodate employees to allow for their full participation in the workplace, despite vulnerability or disadvantage. The establishment of due diligence practices can mitigate the risks of such human rights violations in the workplace and allow for the avoidance of discrimination, facilitation of accommodation, or elimination of workplace harassment or violence.

COMPLICITY IN HUMAN RIGHTS VIOLATIONS

Human rights due diligence also requires evaluation of human rights risks that may arise from association with third parties, including business partners or host governments.

The test for “responsibility” in the Framework is the “actual or potential human rights impacts” resulting from a company’s own business activities as well as through its relationships with other parties. This responsibility may therefore extend through a company’s supply chain relationships or even to relationships between the corporate actor and sovereign governments. Human rights violations committed by these actors can become a human rights violation of the corporation under the doctrine of “complicity”.

Civil or potentially even criminal liability (local or international), or social disapprobation impairing corporate reputation, may flow where a company enables, exacerbates or facilitates human rights abuses of other entities which were foreseeable and ought to have been known by the company. The more “proximate” the company is to the perpetrator of human rights abuses, the more likely that complicity may be found. As the International Commission of Jurists has noted, complicity will not be avoided through wilful blindness to the human rights violations of business partners or host governments.

Due diligence allows companies to “know” what they “ought to know”, and to identify potential complicity in human rights violations before it occurs. Such knowledge can allow the company to advertently manage and mitigate such risks in the course of corporate decision making, and avoid the risks of “wilful blindness” that may lead to complicity in human rights violations.

TRANSPARENCY AND REPORTING

The Framework incorporates transparency and reporting as part of the human rights due diligence process. Transparency regarding corporate policies and practices in the area of human rights may (and often is) a requirement of securities disclosure obligations. While such obligations are often tied to the concept of “materiality”, a growing consensus is emerging in the investment community that the risks (both legal and reputational) presented by actual or potential human rights violations is inherently “material” to the long term viability of the corporation. Failure to fully disclose in securities filings material risks facing the corporation, including those arising from human rights practices, can provide the basis for civil liability in many jurisdictions, including Canadian jurisdictions.

Corporate reporting and transparency on human rights practices may also be a condition of contractual relationships amongst business partners. Non-financial or “sustainability” reporting may also be adopted voluntarily by corporate actors that through frameworks such as the Global Reporting Initiative, to meet industry standards or stakeholder expectations.

Due diligence ensures that reporting is complete and accurate, and to reduce the likelihood that unforeseen risks will turn into uncontrollable liability. It can also allow corporations to more effectively assess the materiality of risks, and make better decisions regarding the appropriate level of disclosure.

CONCLUSIONS

Human rights due diligence is an important element of the emergent international custom that corporations “respect” human rights. The creation of policies, incorporation of policies into decision making, monitoring, assessment and transparency are the essential elements of a human rights due diligence program. Due diligence may be required by local laws, or simply be adopted as international best practices. The objective of due diligence is to identify, assess and mitigate risks to the extent possible, and to avoid the potential for liability or reputational damage that can result from a strategy of wilful blindness to human rights issues.

Mining and Resources Newsletter

2010-04-23T12:10:00.000-07:00

Ogilvy Renault's Quarterly Newsletter on Mining and Resource Law can be found here, with excellent articles (if I do say so, being one of the contributors!) on Bill C-300 and new disclosure obligations on Environmental Social and Governance indicators.

Supply Chain Risk Insights - Responsibility

2010-04-16T08:58:00.000-07:00

See a good Wall Street Journal article on the CSR risks inherent in supply chain relationships here.

The Role of Authority in Law and Business: Lessons from Google and China

2010-04-04T10:56:00.000-07:00

The Google/China issue is a fascinating topic for legal counsel because it brings into stark terms the true challenge of corporate social responsibility (CSR) for business law. At its essence, the question being debated by both sides of this issue is the proper role of "authority" as a guide for corporate conduct. This is the focus of my graduate thesis, and I believe it is a central issue in understanding how corporations should navigate social expectations, be they legal, ethical, or CSR related - or as is most often the case, a tangled amalgam of each.

Note that I distinguish between "authority" and "law". Authority and law are often confused with one another, but are not the same. Authority has been defined as a "right to rule", lying somewhere between “coercion” and “persuasion”, yet remaining distinct from both. As one author has explained:

Authority is thus related to coercion and persuasion in symmetrical ways. Both of these exist as capacities or potentialities implicit within authority, but are actualized only when those who claim authority sense that they have begun to lose the trust of those over whom they seek to exercise it. In a state of latency or occultation, persuasion and coercion alike are constitutive parts of authority, but once actualized and rendered explicit they signal – indeed, they are, at least temporarily – its negation.

The most highly developed account of authority I have come across was put forth by positivist legal theorist Joseph Raz. "Authority", or more precisely "legitimate authority", is a necessary "claim" of law according to Raz. The authority that law claims is the authority to govern conduct in a way that is exclusive of all other rules or reasons that might otherwise be the basis for action in a given circumstance. In other words, the authority of law allows the law abiding actor to fully justify their conduct, and to rebut any challenge to their conduct, from the perspective of the legal system.

Of course, legal conduct can be rebutted on a moral or ethical basis. These types of evaluations differ from "legal" evaluations because, unlike laws, morality or ethics do not necessarily have a "social source". They may be derived from personally held feelings, or cultures, or religions, or inspirations. Law on the other hand must come from somewhere, it must be created by an edict of a legislatures, a ruling of a court, and so on. This distinction between law and morality is the essence of legal positivism, and one of the foundational principles of modern legal thought in the Western world.

Google in China brings all of these theoretical issues into practical focus. The Chinese government claims for itself authority, like all governments, at least over its geographical jurisdiction. For authority to exist, it must be obeyed. When Google questions or disobeys the orders of the Chinese government, it must, necessarily, call into question that government's authority. This is "necessary", because acceptance of authority in the circumstances would result in obedience. Disobedience, or even contemplated disobedience, is inherently a challenge of authority. Once that challenge has occurred, the only response available to the Chinese government is "coercion", or "persuasion". But the utilization of either of these "signal the negation" of authority itself.

The unique circumstances of Google are made possible by the transnational character of business, where commercial activity and indeed viability transcends the geographical bounds of the authoritative state. Google can afford to question, and even defy, state authority insofar as its existence and continued viability is not dependent upon obedience to state authority. Where that is the case, authority is no longer determinative of outcomes. Instead, what matters is the capacity (of the state or non-state actor) to persuade, or coerce. These potentialities are the only remaining tools of the claimed authority, and must be used effectively if authority is to be re-asserted.

Where no meeting of the minds is possible, the commercial non-state actor retains the possibility of "exit" from the market entirely. An "exit" strategy dramatically limits the possibility of coercion. As a result, authority is effectively reduced to only one of its constitutive potentialities, namely persuasion. The exercise of either of the potentialities (coercion or persuasion) results in the "negation" of authority, at least temporarily. Where only persuasion is available, the claimed authority is even more constrained and highly dependent upon actual legitimacy for its effective reassertion.

In the case of Google, it remains to be seen how the Chinese government will attempt to re-assert its authority in relation to the challenge presented by Google. One response would be "persuasive", which might entail increased adherence of the Chinese authorities to international norms regarding freedom from state censorship. This might allow for a revitalized consensus and framework for a new relationship with Google that would allow it to return to the Chinese market.

Another response could be coercive, including prohibiting access to the Chinese market, and taking other measures that would attempt to enforce the normative order that Google had found unacceptable. Google will still have the option of exit, but may be unable to "re-enter" the market unless it adheres to the authority of the Chinese government in future.

While the foregoing is arguably a "political" analysis, it is also quite legal in nature. We may, as the positivists do, say that law emerges from (state) systems that claim legitimate authority, and which is composed of exclusive reasons for action within that legal system. In the transnational scenario facing Google executives however, that exclusivity is, at best, a fiction. The option of exit allows for the legal reasons of the state to be questioned, challenged, and even disobeyed, or ultimately avoided entirely. By consequence, acceptance of the law's outcomes, in light of the exit option, requires tacit acceptance of the legitimate authority that the law claims for itself. Such acceptance could be, and was for Google, in conflict with other competing reasons (i.e. non-censorship) that can be weighed with the reasons provided by authorities, in ultimately deciding how to act.

Such a weighting of reasons, according to positivist theorists like Raz, is not consistent with the existence of law. That, I would argue, is where traditional positivist conceptions of law are flawed in the modern reality of transnational business. The weighting and balancing of claimed "authoritative" legal reasons is in fact inherent to the transnational commercial world. It is a process that occurs in fact, but which should not lead us to conclude there is no "law". Instead, it should lead us to conclude that law's claimed legitimate authority is not inherent. Law, with its claim of authority, can and should be weighed in the balance of reasons for action in a given circumstance.

In this way, authority does not play the determinative role that the positivists appear to have suggested. Instead, authority is, essentially, nothing more than a symbol of the potentiality of persuasion or coercion. It does not, however, offer a perfect reason that can lead one to accept, unquestioningly, legal edicts cloaked in authority as protected reasons for action. In making a rational decision on how to act, the transnational commercial actor must instead identify all relevant reasons, and make a decision on the balance of reasons, which include authoritative and legal reasons, but not necessarily only those reasons to the exclusion of others.

This approach will be particularly challenging for legal counsel used to relying on legal reasons as exclusive bases for action. Ultimately, these kinds of questions will require a new kind of legal reasoning; one that understands the nature and claims of authority, but is not paralyzed by them. This will necessitate a clear understanding of the social context in which business operates and the reasons that apply to a corporation at a given circumstance and particular point in time. Such a broadened perspective will allow the transnational corporate actor to navigate social obligations in a way that forwards the overarching interests of the corporation, which is ultimately the interests of long-term profitability and viability.

To me, that is the essence of sustainability, and explains well the nexus between law and corporate social responsibility, and the relationship of both to the concept of authority.

CSR and Pension Benefit Legacies

2010-04-04T09:44:00.000-07:00

In a recent article of the Financial Times (full article here), it was noted that a pension scheme of a major food manufacturer was found to have a provision that prevents alteration of the pension plan insofar as such a change would be "unfair or materially detrimental" to the plan's beneficiaries. The article hypothesizes that the "unusual clause" could be linked to the company's "Quaker heritage" and "its doctrine of giving a fair deal to staff and suppliers". This raises some interesting legal issues, and reveals the potential for Corporate Social Responsibility (CSR) motivations to affect legal relations far into the future.

It should be noted that it is not so unusual that a pension plan scheme establishes a trust relationship which prevents the employers from unilaterally amending the plan and its terms in a manner that is "detrimental" to plan beneficiaries. The language regarding "unfairness" is perhaps unique however, in the sense that it would seem to create a different test for an improper amendment than simply a reduction in benefits. The question becomes what constitutes "unfairness" and how an alteration of the plan that was not "materially detrimental" to employees could be deemed "unfair".

Conceivably, such language could impair a company's ability to to make changes to the plan that would affect new members differently than existing members, such as if benefits for new members were removed while such benefits were maintained for current or vested members. Such a limitation could be particularly constraining in the context of a unionized workplace, where benefit (including pension) entitlement was contemplated by the collective agreement, and thus required for all unionized employees. It is possible that unequal benefit entitlement in a grandfathering scenario could be construed as "unfair", and therefore contrary to the plan. In this way, the concept of "fairness" could be incorporated into the collective agreement by its incorporation of the pension plan.

That being said, "fairness" is not the same as "equality", and as such it could be argued persuasively that a grandfathering scenario would not be unfair, so long as similarly situated employees were treated alike (i.e. that new employees were provided the same benefits as one another, but not necessarily the same benefits as differently situated employees).

While there could be arguments both ways, this scenario clearly reveals how CSR type decisions made by companies can affect organizational obligations decades down the road. Pension obligations are often in the nature of a trust, and therefore are a special kind of contractual obligation that can be very difficult to change, regardless of economic circumstances.

Another CSR-related question is whether the alteration of such a plan, or the provision of incentives (or disincentives) to employees to give up their plan entitlements, would be consistent with a company's ethical or social responsibility obligations, aside from the question of legal validity. It is here that legal strategy and CSR become intertwined, and the employer must consider how the cost/benefit objectives of the company to control pension costs can be reconciled with CSR expectations of major stakeholders. Ultimately, the well-being of the company may be contingent upon controlling pension liabilities, and the common interests of stakeholders in the organization's economic viability may provide the most persuasive reasoning for reducing or eliminating the benefit. It is important for companies that have expressly adopted a CSR mandate to give conscious consideration to such reasoning when making such legal decisions.

In all, this scenario illustrates that, while CSR objectives of positive employee relations may motivate language emphasizing fairness and equality, it is important to understand how such language will affect commercial and social relations far into the future.

Social Entrepreurship: Legislative Innovations

2010-03-30T08:57:00.000-07:00

This white paper, developed by the MaRS Discovery District, is part of a series that explores the opportunities and challenges supporting the growth of social ventures in Ontario.

One identified challenge is the lack of a hybrid legal structure for social ventures in Ontario similar to structures introduced in the UK and the US to promote the growth of social ventures in those market places.

In recommending a new legal structure for Ontario, the paper focusses on three objectives:

Increase capital directed at the community for delivering social and/or environmental benefits
Simplify and clarify the legal structures and permitted activities by creating a new form of organizational vehicle
Provide a brand for social enterprise, social finance and community benefit, thus providing legitimacy and enhanced profile for such activities.

The last two objectives will facilitate raising capital, which can benefit the community. Click here to read the white paper in PDF.

Xinhua: "China says Google breaks promise, totally wrong to stop censoring"

2010-03-25T06:46:00.000-07:00

Another article from a Chinese state run news agency, reflecting state position on Google move. See article here.

WSJ: Google's Brin Talks About China Gamble

2010-03-24T11:46:00.000-07:00

Another good article found here.

Google Blog - "A New Approach to China: An Update"

2010-03-22T14:47:00.000-07:00

Interesting blog post by David Drummond, SVP, Corporate Development and Chief Legal Officer for Google, view here.

Grievance Processes for Internal and External Stakeholders

2010-03-20T18:29:00.000-07:00

The purpose of this post is to consider the issue of internal and external stakeholder grievance mechanisms from a legal perspective. The impetus was an interesting article I read by John Sherman, a senior fellow with the Corporate Social Responsibility Initiative of Harvard Kennedy School on the topic.

Peaceful dispute resolution through processes of reasoning is fundamental to law and the legal process. Litigation is only one, and most often not the best, avenue for the peaceful resolution of disputes. As John Sherman correctly points out in his article, lawyers and legal counsel have for decades employed alternative dispute resolution (ADR) mechanisms in order to avoid the time and expense of litigation.

ADR processes traditionally include mediation, arbitration, or negotiation. Negotiation is a bilateral process whereby parties seek to come to a mutually acceptable resolution of the issues between them through trade-offs, promises and agreements. Mediation is similar, but involves the use of a disinterested third party to facilitate resolution. Arbitration entails a binding decision making process, where a third party can impose a resolution on the disputing parties, applying principles that have been set out in advance.

Grievance mechanisms may include any one of these ADR methods. They may also include more investigatory approaches to complaint or dispute resolution, such as an ombudsman/woman who takes complaints, investigates, and attempts to resolve concerns before they grow into a more adversarial dispute. Other approaches, often utilized in the employment or consumer complaints contexts, involve the establishment of a complaints hierarchy, whereby a complainant can raise a concern and have that concern addressed up a hierarchy of management.

The basic principles of any of these mechanisms or procedures are the same. They involve a defined channel for aggrieved persons to raise their concerns. The concerns are then heard and considered by some person or panel with the capacity to remedy them. That person or panel then assesses the complaint based upon some set of principles and reasoning framework that is (presumably) acceptable to the parties. A decision is then made, which is communicated to the aggrieved party, and a resolution implemented.

There is of course, no guarantee the outcome will be satisfactory to the complainant. If it is not, they must decide what further action they may take. This may include litigation, but it could also include other avenues, including more coercive types of responses, such as boycotts or protests. The effectiveness of a grievance mechanism is not determined by whether everyone is satisfied with outcomes, but more importantly whether all affected parties are satisfied by the process that has been employed - which should be based upon the principles of accountability, transparency and above all fairness.

Internal employment complaints processes are common amongst the best run companies I have worked with. These complaints processes range from the informal to the formal. Informal mechanisms can include tailgate meetings regarding health and safety hazards and risks; more formal systems may include investigations or even grievance procedures set out under a collective agreement.

Employment related grievance mechanisms are "internal" to the corporation, but the same principles used in employment related grievance mechanisms can be applied to external stakeholder grievance mechanisms. These may be managed by the company itself, or by third parties. An example of the latter is the Better Business Bureau, which takes consumer complaints that are then responded to by the corporations that are the subject of the complaint. Examples of the former are provided by the many and growing human rights and community relations grievance mechanisms being implemented by mining companies operating in developing countries (for one example see Barrick Gold Corp.). These processes apply the principles set out above of hearing, evaluating and resolving, complaints and concerns.

From a legal point of view, the implementation of well thought out grievance mechanisms can be quite prudent. Whatever legal risks they pose are most often more than offset by their benefits for business and legal strategy.

Contrary to the suggestions of Mr. Sherman that, as a lawyer, I might be disposed to prefer litigation to grievance resolution, I (like most lawyers) view litigation as very unpredictable and undesirable in almost every circumstance. Mutually acceptable resolution of disputes at the earliest stage is almost invariably the best option, if and wherever possible.

I am not, in fact, overly concerned with the outcomes of a complaints resolution process being used as "evidence" in future litigation. I believe that such concerns are quite misguided from a legal perspective. The types of disputes dealt with by grievance mechanisms more often than not involve risks that require due diligence (or some variant of that concept) in order to mitigate. Human rights, health and safety, labour standards, environmental issues, corrupt practices, often must be dealt with on principles of openness and transparency, in order for companies to be compliant with law.

Grievance mechanisms are part of a sound due diligence process. Stakeholders (internal or external) are in the best position to identify conflicts that present social risks to the business, and as such, grievance mechanisms provide an information gathering function that can be used in risk mitigation. They also allow for the identification of misconduct on the part of corporate officers or employees that creates risks for the corporation itself. As anyone who reads the papers knows, it is best for the corporation when such information is not swept under the proverbial rug. "Whistleblower" complaints mechanisms exist "in the shadow of the law" and are often an essential source of information regarding internal malfeasance that can in fact place the entire organization at risk. In many jurisdictions whistleblowers have statutory protections, particularly when they report to governmental authorities.As such, well designed grievance mechanisms not only make good business or ethical sense, they make good legal sense, or may even be legally required.

Perhaps most importantly, these processes foster a culture of openness and transparency that allows for problems to be identified early on, before they become completely unmanageable and present significant risks to the organization.

If companies are aware, or wilfully blind, to misconduct being perpetrated by their officials, they will gain no legal advantage from that should such facts ever come to light. Covering up is not a good legal strategy (not to mention unethical in many circumstances) and as such, a due diligence approach to legal risk management is always advisable and more preferable than wilful blindness. Strong grievance and whistleblowing procedures are very useful for effective due diligence.

For these reasons, grievance mechanisms should be seen as an important aspect of an intelligently designed legal compliance and social risk management system. Such mechanisms fit in well with legal strategy, and in fact facilitate due diligence within the organization that will almost invariably serve to bolster, rather than undermine, a legal position in future litigation.

Ignorance is not bliss when it comes to business, risk management, or the law. Ignorance is risky, and the risks posed by ignorance can only be mitigated with sound procedures that encourage openness and transparent communication between stakeholders and corporate decision makers. Grievance mechanisms, and whistleblowing procedures are very useful tools in this regard and can and ought to be integrated into sound legal and compliance management. It's not just ethical, its good business and good legal strategy.

Law Times: Workplace death sparks charges

2010-03-19T09:29:00.001-07:00

"Ontario’s first instance of criminal charges against a corporation under a recent federal law may be a signal authorities are taking a more aggressive approach to workplace safety following a recent public outcry." See full article here.

Report: Nestle Cancels Sinar Mas Contract After Greenpeace Palm Oil Report

2010-03-19T08:15:00.000-07:00

"Nestle has replaced the Indonesian company Sinar Mas as a supplier of palm oil with another supplier for further shipments. The Switzerland-based company has also committed to using only "certified sustainable palm oil" in its products by 2015." See full article here.

FT: Google to shut China search engine

2010-03-14T13:31:00.001-07:00

"Google has drawn up detailed plans for the closure of its Chinese search engine and is now “99.9 per cent” certain to go ahead as talks over censorship with the Chinese authorities have reached an apparent impasse, according to a person familiar with the company’s thinking."

See full article from Financial Times here.

Global CSR Monitor - First Issue Released!

2010-03-12T18:21:00.001-08:00

Ogilvy Renault's "Global CSR Monitor", released this week...

Bill C-300 - Opposition Making Sense

2010-03-12T18:18:00.000-08:00

While attending the Prospectors & Developers Association of Canada (PDAC) conference in Toronto Canada this week, I had some very interesting conversations regarding Bill C-300.

As you may know, Bill C-300 proposes (in essence) the establishment of a complaints mechanism that would allow persons affected by the activity of Canadian mining and oil and gas companies. Complaints could be made by persons anywhere in the world. The Canadian Minister of Foreign Affairs and International Trade would be required to review the complaint. If the company under review were found to have violated CSR best practices, as embodied in documents like the IFC Guidelines, the company could be banned from receiving funding or investment from the Canadian Export Development Corporation or from the Canada Pension Plan.

The general mood of participants I spoke with was of opposition to Bill C-300. The reasons were quite thoughtful and persuasive. In essence, the opposition was not with the idea of a dispute resolution mechanism in principle. Instead, it is with the formulation of Bill C-300 and its conflict with current initiatives in the promotion of CSR in the Canadian extractive sector.

The Canadian Government has already enacted a CSR Strategy and has created a CSR Centre of Excellence and CSR Counsellor role to serve as a contact point for complaints regarding the activity of Canadian companies abroad. This strategy came out of a process of consultation that included NGOs and business.

It should be noted that the Canadian Government did not fully implement the recommendations of that consultation however, and in many respects Bill C-300 is a reaction to that fact. It is not entirely clear what the role of the CSR Counsellor will be. Some have complained that she will not have a mediation role or powers of adjudication. Participation in any activity with the Counsellor will be entirely voluntary.

The general view amongst opponents to Bill C-300 whom I spoke with was that the Bill is really a distraction to the CSR Strategy and has not been well thought out in its formulation. Basic questions/concerns about the Bill include: How would it be operationalized? How would facts be gathered? How would investigations be performed? What standards would be applied? None of these questions have been adequately answered in the minds of industry representatives I spoke with. Many of these people were strong proponents, and even leading experts, in CSR, not stalwarts opposed to the concept entirely.

Some also fear that the mechanism proposed in Bill C-300 would be used to publicly smear Canadian mining companies, and would do serious harm to their reputation abroad, whether or not complaints had any merit. While the CSR Counsellor role may not go as far as many would like, the view seemed to be that it is only one part of the Government's CSR Strategy which should be given time to play out.

I heard often that companies themselves want to have dispute resolution mechanisms in place. Such mechanisms can allow companies to rebut misinformation put out by NGOs that are criticizing their activities without legitimate basis. However, the public nature of the mechanism proposed in Bill C-300, coupled with the fact that no provision is made in the Bill for some very basic questions regarding its operation, have led to the conclusion that it is simply not the right solution to reach the legitimate objective of promoting CSR best practices in the Canadian extractive industry, or promoting the "protect, respect and remedy" principles.

When one reads Bill C-300 it becomes readily apparent that such concerns are real and should be troubling to those interested in promoting CSR best practices. It should be recalled that Bill C-300 is a Private Members Bill and was likely drafted with little anticipation of success. Despite this, the Bill has passed second reading and may pass in the House of Commons, although it may have little chance of success in the Senate. Whatever the case, the Bill raises interesting and important issues, but may simply be too aggressive, and too poorly thought out to really advance its purpose well. The message I heard loud and clear from members of industry was that while dispute resolution is a legitimate issue that will likely require more than a CSR Counsellor, Bill C-300 is simply not the way to go.

I tend to agree. As noted in a previous posting on non-judicial grievance mechanisms (drafted in 2008 in response to work of John Ruggie on this topic) I think adjudication mechanisms for dispute resolution may ultimately be a good thing for companies wishing to clear their name, as well as for those legitimately affected by extractive industries, and society generally. That being said, such mechanisms must be introduced carefully and thoughtfully, particularly if done by government. Where government develops an adjudicative mechanism, the focus should be on transparency, accountability and fairness. It seems as though Bill C-300 is not sufficiently sensitive to these balanced objectives to be supportable. The existing CSR Strategy should be given a chance to play out and be developed. It has already created heightened awareness of CSR in the industry, and will likely have substantial success in increasing voluntary adoption of CSR standards.

Incremental advancement towards adjudication, with eventual introduction of a sanctioning regime may eventually make sense, once these ideas have been more fully developed and with buy-in from industry. Support should be given to companies wishing to adopt best practices in the meantime. This will take time and should be done in the pragmatic Canadian way - creating forums for thoughtful and deliberative problem solving, with the interests of all stakeholders, and fundamental principles of fairness (procedural and substantive) at the forefront.

PDAC E3 Plus CSR Guidelines

2010-03-12T17:45:00.000-08:00

I attended the Prospectors and Developers Association of Canada (PDAC) conference this week. It is a huge conference that takes place every year in Toronto, Canada, a trade show for the exploration and development sector of the mining industry. Corporate Social Responsibility (CSR) issues abounded throughout the conference, with interesting discussion of PDAC's E3 Plus Framework.

One session involved a talk by the Export Development Bank of Canada on how CSR and sustainability issues are used to evaluate projects in financing decisions. Another session was a tutorial on the E3 Plus Framework created by PDAC. The purpose of this article is to give a brief overview of the E3 Plus Framework and how they should be understood from a legal perspective.

E3 Plus provides first principles, guidance, and detailed toolkits related to three areas: (1) Environmental Stewardship; (2) Social Responsibility; (3) Health and Safety. The toolkits provided for each of the three areas are in the form of best practices. They are quite detailed, covering a broad range of subtopics within the above noted categories. They are not meant to be exhaustive, but can get into considerable detail regarding the practices an exploration company should adopt in respect of CSR. For example, it was mentioned that the health and safety toolkit includes information on topics such as specific as "working on ice". There are also toolkits regarding community and stakeholder engagement, including with respect to aboriginal communities. The system is still under development. My sense is that at some point it will aim to be a "pre-assembled" CSR strategy for mineral exploration.There is even talk about creating an "accreditation" or "certification" for companies that sufficiently adopt the framework. This would involve an auditing and verification process, something that even the ISO 26000 standard does not contemplate.

The toolkits are hundreds of pages long. Some concern was expressed amongst participants that it may be too complicated. Clearly PDAC walks a fine line. On the one hand if it is too detailed it may be overly cumbersome. If not detailed enough it may make the topic of CSR seem misleadingly simple. The system is intended to exist alongside other standards and best practices, including those of the ISO 26000 standard (forthcoming).

In my view, E3 Plus is a valiant and extremely useful assemblage of topics that are relevant for a CSR program. E3 Plus makes clear that its framework is meant to be overlaid on legal and regulatory compliance, which it attempts to go beyond into the realm of best practice. While that may be the case, my own opinion is that it could be somewhat risky for companies to take the framework and implement it without expert assistance. Essential in that regard is legal counsel, to ensure that business practices in terms of employment, health and safety, and environment meet legal and regulatory requirements. Legal counsel familiar with E3 Plus and CSR best practice generally can also facilitate the integration of legal compliance and the movement towards best practice. It is imperative that working with the framework does not lead companies into a false sense of security. Many if not all of these issues have legal implications, and will be implemented in the "shadow of the state", with the potential for real sanctions for mismanagement.

Best practices in CSR will mean integrating these practices throughout the organization, at both a strategic and operational level. That concept is what E3 Plus conveys very well. It also provides a very useful summary of many of the issues that exploration companies should consider in managing CSR practices. I highly recommend it as a good CSR primer for this reason, with the strong caveats mentioned.

Globe & Mail: China sends Google stern warning

2010-03-12T17:18:00.001-08:00

"Obey the law or ‘pay the consequences,' country's top Internet regulator says." Full article here.

This development puts starkly the question of how legal compliance fits with CSR practices. What happens when they conflict? The assessment of the Chinese official is factually correct - failure to comply with state requirements will result in sanctions. Google has the choice of staying or going. But, they also have the choice of staying and trying to maintain their integrity in terms of openness, transparency and non-censorship to the best of their ability, despite the inherent struggles and pressures they will face. I hope they pick the third option, and I look forward to seeing what creative ways they come up with to do so. As noted in an earlier posting this might include working through supranational organizations to promote the transparency agenda.

How CSR Practice Can Create Legal Rights or Obligations

2010-03-02T14:30:00.000-08:00

I have noted in previous postings that CSR standards, once adopted and consistently acted upon by organizations or industries, could become evidence of customary practice that might have legal implications. The purpose of this post is to develop this thought and briefly discuss one way in which this could happen.

There is debate in the legal community on whether "custom" can be considered "law", or whether it is simply a fact that may be recognized by law. While such arguments may matter in technical litigation, for the purposes of business it should be assumed that a "customary" obligation recognized by law is tantamount to a "legal" obligation.

There are many circumstances where customary practices can give rise to legal rights or obligations. An interesting historical example is provided by customary practices that have existed "since time immemorial" or "for the time of living memory" which have been preserved as rights despite the development of modern systems of property rights. In England for example, where communities have historically used land for a certain purpose (like cultural events or sports), the right to continue such activities may trump property ownership rights. Similarly, Aboriginal rights and title may take precedence over private property rights, although their source is considered unique (sui generis) and therefore not necessarily dependent upon common law principles.

In employment law, there are sometimes "implied" terms of employment contracts that are derived from customary practices. In a unionized work environment, past practices can be considered an implied promise creating an "estoppel" (preventing the practice from being altered unilaterally) where the other party relies on the practice to its own detriment. Area practice in the construction industry can determine what union has jurisdiction to perform a particular kind of work. Courts in certain Canadian provinces have even implied terms into the employment contracts of short term construction workers and real estate agents that they can be terminated "at will" - something that is not permissible otherwise in Canada. In health and safety legislation, employers may be required to show that they have exercised "due diligence" when an accident, injury or other incident happens. Showing that the steps the company took to protect employees was consistent with "industry practice" is one of the ways due diligence can be demonstrated.

As these examples illustrate, there are many ways that custom, as illustrated by organizational or industry practice, can be implied into contracts, or otherwise form the basis of legal rights and obligations. This begs the question whether CSR practices could be the same? I am not aware of any cases that have considered this question. However, I think the cautious answer is "possibly yes". Certainly CSR practices, if generally followed, would provide evidence of past practice that could amount to custom in certain circumstances. The persuasiveness of a CSR practice as evidence would depend on facts such as how long it has existed and how consistently it has been followed. It may also be relevant whether other parties have relied on the practice being continued. Often times this transformation from practice to right or obligation will also depend on public policy considerations.

What does this mean for business leaders? Simply, it serves to illustrate the point that CSR practices should not be seen as entirely divorced from legal obligations. I have said before that the logical structure of CSR and legal obligations are very similar - both are social obligations that constrain otherwise unfettered behaviour. They are not synonymous concepts however, and it is apparent that not all CSR obligations are legal obligations, or vice versa. Nevertheless, to the extent that CSR is illustrative of an organizational or industry practice, or "best practice", it may well have evidentiary weight in a number of circumstances.

By consequence, it should be recognized that effective governance and risk management demands that legal compliance and CSR compliance activities be coordinated, so the left hand knows what the right hand is doing, and "voluntary" commitments don't inadvertently become legally enforceable.

Wall Street Journal: Goldman Warns Investors That Bad PR Could Hurt Business

2010-03-02T13:59:00.001-08:00

"Goldman Sachs Group Inc. (GS) has added something new to the laundry list of financial risks it faces: unflattering attention..." See full article here.

Globe & Mail: Syncrude asks court to drop charge in dead ducks trial

2010-03-01T16:06:00.000-08:00

"Forcing oil sands company to face both federal and provincial charges at the same time would be akin to ‘double jeopardy,' lawyer argues." See full article here.

Apple Audits Labor Practices

2010-02-28T20:28:00.000-08:00

"Company Says Suppliers Hired Underage Workers, Violated Other Core Policies." writes Wall Street Journal. Read full article here.

Toyoda’s Testimony

2010-02-27T07:25:00.000-08:00

"Automaker’s CEO apologizes on Capitol Hill, but lawmakers seem unimpressed", says Associate Press. See full article here.

"Too Good to Fail"

2010-02-27T07:20:00.000-08:00

India’s Tata, one of the world’s largest conglomerates, is basing an ambitious global strategy on 142 years of social entrepreneurship.

See full article in Strategy + Business here

Government Contracts in Ontario - Illustrating the Need for CSR-style Human Rights Due Diligence in Corporate Governance

2010-02-20T14:35:00.000-08:00

Section 26 of the Ontario Human Rights Code states that it is a "...condition of every contract entered into by or on behalf of the Crown or any agency thereof and of every subcontract entered into in the performance thereof that..." there be no discrimination in employment (as prohibited by section 5 of the Code) "...in the course of performing the contract."

Subsection 26(3) of the Code further sets out the powers of the Tribunal as follows:

Where an infringement of a right under section 5 is found by the Tribunal upon a complaint and constitutes a breach under this section, the breach of condition is sufficient grounds for cancellation of the contract, grant, contribution, loan or guarantee and refusal to enter into any further contract with or make any further grant, contribution, loan or guarantee to the same person

By consequence, where a person (or company) has entered into any contract with the Crown, or an agency of the Crown, (in Ontario where the Code applies) a potential consequence of employment discrimination could actually be the nullification of the contract, and refusal by the Crown to enter into any future contract, grant, contribution, loan or guarantee to that person (or company) in future.

Quite conceivably, such consequences could be staggeringly costly for businesses that depend on the Ontario government for financing or revenue generation.

It should be noted that very few cases exist that have applied or interpreted this section, which has existed ostensibly since 1990. However, even the possibility of such a consequence should make it evident that companies interested in preserving their ability to contract with government in Ontario must conduct effective due diligence in respect of their employment related human rights management and legal compliance, if their capacity to contract is to be preserved. Where such contracts are in place, corporate management must also recognize that employment related human rights issues are of strategic importance to the business. Potential consequences for failure to comply with section 5 of the Code could potentially extend far beyond orders for compliance or damages awards, and include the nullification of existing contractual relationships with the Ontario Government, including those related to financing or the provision of goods and services.

Sound Corporate Social Responsibility ("CSR") management necessitates taking a proactive approach to the issue of human rights in employment, and should include processes of human rights related due diligence when entering into business contracts as part of effective corporate governance. Indeed, in the context of these provisions of the Code such an approach may in fact be essential, and could also provide companies with a competitive advantage with respect to the establishment and maintenance of contractual relationships with the Government of Ontario.

A New Scope for Material Environmental Social and Governance Disclosure?

2010-02-19T10:38:00.000-08:00

On April 9, 2009, a private member’s resolution was passed unanimously by the Ontario Legislature calling on the Ontario Securities Commission (“OSC”) to conduct a consultation on corporate social responsibility and environmental, social and governance reporting standards, and adopt an enhanced standardized reporting framework for environmental, social and governance matters.

In response to this request, roundtable consultation meetings were held on September 18, 2009 and December 7, 2009 to inform the recommendations that would be provided to the Ministry of Finance. Following the consultations, on December 18, 2009, the OSC issued Notice 51-717 Corporate Governance and Environmental Disclosure. The Notice communicates the OSC’s intention to conduct a review of corporate governance disclosure in information circulars, annual information forms, or annual management’s discussion and analysis forms filed by issuers in the of spring of 2010.

The OSC will also, in consultation with its advisory committees and other experts in the area, issue a staff notice by December 2010, providing guidance on compliance with existing environmental disclosure requirements.

In February of 2010, a second report to the Minister of Finance is expected to be issued on the topic of corporate “social” performance reporting. While not yet finalized, it is expected that this report will similarly recommend enhanced material disclosure of corporate social performance information be encouraged by the Ministry and the OSC. Such recommendations would be consistent with the approach to material environmental disclosure taken by the OSC already (as indicated in Staff Notice 51-716, Environmental Reporting). Corporate social performance information would include such things as employment and labour relations, human rights practices, health and safety, consumer relations, and aboriginal and community relations.

While these developments suggest a renewed emphasis on sustainability reporting by the Ontario government, they do not indicate that regulatory or legislative reform is on the horizon. Instead, the recommendations flowing from the April 9, 2009 resolution emphasize the need for complete disclosure of “material” social, environmental and governance practices in order to comply with existing Ontario securities law.

The question becomes what is “material” and what must be disclosed by Ontario issuers. Canadian Securities Administrators (CSA) National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) requires public companies to prepare, file with regulators and make available to the public continuous disclosure documents such as annual information forms, annual and interim financial statements and accompanying management’s discussion and analysis, and material change reports. The objective of continuous disclosure requirements is to provide investors with all the relevant information they need to make informed decisions on whether to buy or sell securities and at what price.

Several environmental, social and governance reporting obligations already arise under NI 51-102. Public companies are required to disclose in their MD&A any known trends, demands, commitments, events or uncertainties that are reasonably likely to affect the company’s business or that management reasonably believes will materially affect the company’s future performance. Annual information forms are required to discuss: material information regarding the financial and operational effects of social and environmental protection requirements on the capital expenditures, earnings and competitive position of the company in the current financial year and the expected effect in future years. Social and environmental policies that are fundamental to the company’s operations must be disclosed, along with the steps taken to implement them, associated risk factors and regulatory constraints that would be likely to influence investor decision making.

Social and environmental compliance, and associated risks, can significantly affect the business strategy, financial performance and potential value of a company. Investors want and are entitled to know the long-term impacts of social and environmental responsibilities on the business. If that disclosure is misleading or insufficient, investors in securities of the company can sue.

“Materiality” is, and will remain, the determining factor for including information in continuous disclosure documents mandated by securities laws. Information relating to social and environmental matters is likely material if a reasonable investor’s decision of whether or not to buy, sell or hold securities of the issuer would likely be influenced or changed if the information was omitted or misstated. The OSC has stated that issuers should consider both quantitative and qualitative factors in determining materiality generally, and particularly for disclosure relating to environmental matters. The same will likely be true of corporate “social” performance issues.

The likely outcome of these sustainability reporting initiatives in Ontario will be an increased emphasis on compliance within existing requirements. Much work remains to be done however, and issuers should expect an ongoing process of engagement with issuers, investors and other stakeholders, to define the proper scope of materiality. There may also be increased efforts at standardization of environmental and corporate social performance indicators and reporting standards. Issuers will, moreover, be increasingly encouraged to identify social and environmental issues and areas of social impact that are most likely to be material and relevant to their investors. In anticipation of such expectations, issuers can begin to examine existing voluntary sustainability reporting frameworks including the Global Reporting Initiative.

The bottom line of these developments for securities issuers is that public companies in Ontario and the rest of Canada are, and will continue to be, expected to fully disclose and discuss their social, environmental and governance risks, contingencies and compliance costs, to the extent they are material for the “reasonable investor”. While the scope of “materiality” has not changed there may be a greater emphasis on full disclosure in these areas. This may result in greater disclosure and new challenges for issuers.

Enforced Self-Regulation: A New Paradigm for Canadian Human Rights Law?

2010-02-13T11:13:00.001-08:00

Corporate Social Responsibility (“CSR”) has been referred to as a form of “self-regulation in the shadow of the law”. While CSR strategies for corporate governance may be often “voluntarily” adopted, a CSR mandate can and should be seen to serve as an extension of sound legal management, aimed at mitigating legal and other social risks for the business organization.

The inter-linkage between CSR and legal compliance is becoming most evident in the area of human rights. Unlike in traditional “command and control” approaches to regulation, Canadian human rights regulators have increasingly begun to expect human rights compliance to be met through processes of self-regulation, backed by potential sanctions for poor performance. Such regulatory approaches are commonly referred to as “enforced self-regulation”, and are a trend that is beginning to bring CSR concepts into the mainstream of legal compliance management.

Ontario’s Accessibility for Ontarians with Disabilities Act

On June 13, 2005, the Ontario government introduced the Accessibility for Ontarians with Disabilities Act (the “AODA”). The stated objective of the AODA is to improve access to goods, services, facilities, accommodation, employment, buildings, structures, and premises in Ontario by 2025. A unique feature of the AODA is its provision for the establishment of “accessibility standards” which will set the parameters of what is meant by “accessibility”. The accessibility standards are being developed by committees composed of various interested stakeholders.

The standards provide guidance to businesses on how to develop policies, practices, and training programs to encourage enhanced accessibility. The standards are mandatory and their requirements are backed by sanctions for non-compliance. The AODA and its standards are not prescriptive of the substance of accessibility policies, practices and procedures, however. Instead, they create obligations on the businesses to which the standards apply to develop and implement "self-regulation" in respect of accessibility that will operate “in the shadow” of the inspection and sanctioning provisions of the AODA.

Canadian Human Rights Commission “Maturity Model” Initiative

The Canadian Human Rights Commission (“CHRC”) is developing an apparently voluntary program to promote human rights management within business practices, consistent with the objective of CSR. The initiative, which is in its very early stages, is being developed by the CHRC in association with its “Employer Advisory Council”.

According to speeches delivered by the CHRC’s Chief Commissioner, the initiative will result in the creation of a CHRC “Maturity Model” that will serve as a “roadmap” and “measurement tool” to guide businesses on the implementation of internalized dispute resolution mechanisms to deal with human rights disputes within the organization. The strategy moves away from the traditional “back end” focus on compliance enforcement, and instead promotes effective internal management of human rights conflicts.

While it appears as though the “Maturity Model” will be voluntary, meaning that it will be over and above regulatory obligations, those companies that adopt the approach will need to consider how such a system can assist in legal compliance with federal human rights legislation. Moreover, from a legal perspective, effective “front end” management of human rights issues will undoubtedly assist businesses in demonstrating compliance with legal obligations, if their practices are challenged by regulatory authorities.

Conclusions

As these examples illustrate, human rights regulatory approaches in Canada may include the promotion of self-regulation amongst businesses. Companies that have adopted a CSR mandate should view such approaches to regulation as a potential for competitive advantage. With a well developed CSR program, integrated into legal compliance management, businesses can get ahead of regulatory enforcement, and develop goodwill with regulatory agencies through effective self-regulation. Accomplishing these goals necessitates a CSR strategy that gives consideration to legal compliance, and a legal compliance strategy that takes into account CSR.

Wall Street Journal on "Sustainability" as the new "CSR"

2010-02-05T09:47:00.000-08:00

Here's a great article called "Good Intentions", by Julian Evans, discussing how "The credit crisis has compelled companies to take a more holistic view of social responsibility...". Published February 3, 2010.

ISO 26000 Social Responsibility Standard - A Sneakpeek

2010-01-24T07:34:00.000-08:00

I have had an opportunity to examine a draft of the not yet finalized Social Responsibility standard of the International Standards Organization ("ISO"), ISO 26000. If the standard could be summed up in a formula, it would be: social responsibility = compliance with international and domestic law + stakeholder engagement + effective monitoring, review and corporate governance.

The identification and engagement of stakeholders permeates the best practices developed in the standard. This means however that the concept of social responsibility contemplated by the standard is inherently context specific, and dependent upon the identification of stakeholder interests and concerns. Perhaps for this reason, the standard is unable to give much specific instruction on organizational practices (other than in a general sense) which if followed would make the organization "socially responsible". The guidance offered remains rather "high level", but nevertheless insightful in helping to define areas of interest for organizations implementing a "social responsibility" mandate.

The standard was developed through (what the ISO characterizes as) an unprecedented consultation process in terms of its inclusiveness and breadth. Representatives of business, government, civil society, organized labour and other non-governmental organizations participated in the drafting of the standard. The standard is not without its critics. The International Organization of Employers has expressed its view that social responsibility is too complex to be communicated in a standard, and that ultimately social responsibility should be enforced through national laws rather than employer self-regulation. Importantly, it should be understood that ISO 2600 is not a management system standard, and that no certification will be obtainable (as it is for other ISO management system standards).

The standard states that it is not intended as a basis for legal actions, complaints, defences or other claims in any international, domestic or other proceeding, nor is it intended to be cited as evidence of the evolution of customary international law. However, such caveats cannot remove the possibility that its contents, if adopted by businesses or industries, could be used as evidence of social responsibility "best practice". It is also conceivable that the standard could be used by national governments in the drafting of legislation related to social responsibility (though this has not happened to date to my knowledge).

In terms of content, the standard provides definitions of key terms and an overview of the elements of social responsibility. "Social Responsibility" is defined as the responsibility of an organization for:

the impacts of its decisions and activities on society and the environment;
transparent and ethical behaviour that contributes to sustainable development including health and the welfare of society;
taking account of the expectations of stakeholders;
being in compliance with applicable law and consistent with international norms of behaviour;
integrating social responsibility throughout the organization and practicing it in relationships with stakeholders.

The responsibility of an organization is said to extend to its "sphere of influence", which encompasses an area or political, contractual or economic relationships across which an organization has the ability to affect the decisions or activities of individuals or organizations. Most fundamentally, the standard emphasizes the role of stakeholder engagement in identifying social responsibility expectations. Stakeholder engagement is defined as an "...activity undertaken to create opportunities for dialogue between an organization and one or more of its stakeholders with the aim of providing an informed basis for the organization’s decisions."

Social responsibility entails "Accountability", which necessitates accountability for impacts on society and the environment of the organization, and an acceptance of "appropriate scrutiny", with a concomitant "duty to respond" to criticism of organizational practices. The "authority" of the scrutinizer is a relevant consideration in formulating an appropriate response. Where wrongdoing has occurred the organization should take action to prevent harm or a repeat event.

"Transparency" is also required for social responsibility. Transparency should be provided with respect to the purpose, nature and location of an organization's activity, the manner by which decisions are made, implemented and reviewed, as well as the roles responsibilities and accountability across the organization.

ISO 26000 encourages the identification of "standards and criteria" to evaluate performance. Organizations should also establish oversight mechanisms and controls to monitor and enforce such standards, and to facilitate reporting of unethical behaviour without reprisal.

Respect for rule of law is flagged as essentially important to the achievement of social responsibility. This means that no individual or organization should consider itself above law. Moreover, the supremacy of law as the rules and norms of society should be respected. "Law" is distinguished, rightly, from the mere arbitrary exercise of power. Laws include those that are written, publicly disclosed and fairly enforced according to established procedures. Laws also include international norms of behaviour, and custom. Where law does not provide for minimum environmental or social safeguards,conflicts with international norms, or is implemented in conflict with international norms, organizations should seek legitimate opportunities and channels to to influence relevant authorities to remedy such conflict. In so doing, organizations should avoid "complicity" with authorities that act in defiance of law or international norms. Complicity may occur by act or omission, when an organization benefits from or stays silent about, an illegal act that they knew or should have known would result in substantial negative impacts on the environment or society.

Organizations are also required by the standard to demonstrate "respect for human rights". This is said to involve recognition of the importance and universality of human rights, as embodied in the International Bill of Human Rights, national laws and international norms. Businesses should not, as a practice, take advantage of situations where such rights not protected.

As the foregoing reveals, the ISO 26000 provides a fairly high level overview of the relevant considerations for any social responsibility mandate. Organizations implementing such practices, through this standard or otherwise, should consider the following:

Standards like the ISO 26000 are useful guidelines, but are not blueprints for social responsibility

a social responsibility mandate is complicated and involves consideration of legal, customary and transnational norms of behaviour - to be effective and avoid unnecessary liability such norms must be adequately mapped and understood prior to making commitments and in the implementation of a social responsibility plan;

Stakeholder engagement is an essential element of social responsibility and communication, transparency and accountability should be the focus of any such endeavour;

However, enhanced engagement, transparency and accountability creates inherent risks (legal, political and business related) that should be fully understood in the implementation of a social responsibility program;

Compliance with law and legal expectations affecting environmental and social issues will be the foundation of any social responsibility program;

Voluntary commitments may give rise to real obligations and should not be made without proper understanding of how they will be implemented, and their associated risks and benefits.

Globe & Mail: First Nations, CEOs signal new era - Bay Street leaders and AFN National Chief meet to exchange ideas

2010-01-19T19:36:00.000-08:00

Important example of constructive engagement between Canada's business community and First Nations representatives...

http://www.theglobeandmail.com/report-on-business/first-nations-ceos-signal-new-era/article1436875/

Globe & Mail: Native Group Calls for Pipeline Boycott

2010-01-19T19:34:00.000-08:00

Interesting article with social sustainability implications affecting the Canadian oil and gas industry to keep an eye on...

http://www.theglobeandmail.com/report-on-business/native-group-calls-for-pipeline-boycott/article1433630/

The Wheel Already Exists, Use It! A Response to the Work of John G. Ruggie on Non-Judicial Grievance Mechanisms for Business and Human Rights

2010-01-19T06:23:00.000-08:00

This essay is from September 2008 and provides some of my early thoughts on the concept of "non-judicial grievance mechanisms" that could serve to adjudicate disputes regarding the human rights practices of business. It was submitted as part of an open forum for John G. Ruggie, Special Representative to the United Nations Secretary General on Business and Human Rights.
...

The very concept of "non-judicial grievance mechanisms" is illustrative of a huge step towards rethinking the problems associated with the "governance gap" with respect to human rights enforcement, and incorporating international human rights norms into business practices. By "non-judicial" we likely mean to distinguish such a mechanism from state judicial institutions, rather than non-legal institutions per se. Legal (or "judicial") reasoning would, presumably, still be applied in "non-judicial" grievance procedures. By this we mean that factual behaviours will be assessed with reference to accepted normative frameworks of reasonableness, such as laws or international norms. Those behaviours that are justifiable in relation to accepted reasonableness frameworks will be assessed as acceptable, those found to be non-compliant with accepted reasonableness frameworks will be assessed as unacceptable. This process is the same used in state based "judicial" systems, and will inevitably be the basis of non-state "non-judicial" mechanisms as we so define it.

The paradigm shift then is not in the approach or methodology that will be applied in the mechanisms that we are attempting to create, but the fact that the mechanisms will not be necessarily associated with or tied to state systems of legislation and law enforcement.

There is a powerful practical reason why we are attempting to de-link the concept of "grievance mechanisms" from state judicial institutions. For one, states have been slow to act in creating grievance mechanisms to address business and human rights issues (hereinafter referred to as "BHR") that arise internationally, and outside of a particular jurisdiction. Moreover, BHR issues often arise within jurisdictions where governance in the area of BHR is frail, or non-existent. Such circumstances were the very impetus for the creation of international BHR standards. Surely it would be imprudent to premise their effectiveness on a change in state behaviour towards enforceability of BHR standards.

Secondly, and perhaps inter-relatedly, international BHR standards have been developed, and promulgated, at the supranational level. These standards have also, quite remarkably, been at least tacitly recognized as valid and legitimate by a significant number of multinational businesses, the very actors whose behaviour will be scrutinized in relation to such standards. The reason for this has been attributed to the importance of "reputational risk" for business in the area of BHR. Failure to meet internationally accepted standards of BHR practice has been found to imperil the capacity of business to continue operating in their markets. The costs of bad publicity or violating the trust of stakeholders have proven enormous for many businesses that failed to adequately address such issues in their business practices.

Similar conclusions have been reached by markets and investors, which have begun to view compliance with international BHR standards as a non-financial indicator of sound management and long-term corporate performance. This trend has resulted in the quantification of the "value" that is created by what is in essence "legal" compliance with international BHR norms. These market pressures have further forced more businesses to (at least tacitly) accept international BHR standards as the "benchmark" against which their performance in these areas should be assessed. To demonstrate compliance, many businesses have joined international frameworks like the Global Compact, and even voluntarily chosen to disclose information on BHR practices in non-financial reporting of the sort promoted by the Global Reporting Initiative.

The challenge that we now face is how to move beyond mere acceptance of international BHR norms as benchmarks, and towards creating ways of "enforcing" compliance, or otherwise remedying circumstances of non-compliance.

Many alternatives have been considered, but have been seen to come up short. Voluntary compliance has occurred in a number of cases, but ultimately is premised on a cost benefit analysis that may result in significant violations where no consequences are expected to result from non-compliance. Similarly, and despite the effect the market has had on the acceptance of BHR norms as benchmarks, the market will often only penalize companies for failure to meet such benchmarks where the loss in "value" associated with such a failure is not outweighed by the potential for gain. There are countless scenarios that can be envisioned where violations of international BHR standards could be offset by gains, so as to make for a worthwhile investment from a returns perspective. Therein lies the weakness of a purely market driven approach.

The participation of state actors in governing compliance would make things much easier. States are really the only entities in society with the capacity to truly enforce compliance with legal norms and remedy non-compliance most of the time. Unfortunately however, we have already recognized that waiting for States to act is not adequate. There are too many problems of extra-territoriality, and/or willingness to take action, to focus our attention on how to get States to pay attention to BHR issues, create legislation, and begin to use domestic state judicial mechanisms to enforce compliance or remedy non-compliance with BHR standards.

Despite our identification of the inevitability of moving beyond state judicial mechanisms, several of the proposals so far contemplated in this consultation nevertheless require some sort of State action to be plausible. International capacity building programs would be used to encourage and cajole State action. "National Ombudsmen" (or Ombudswomen) would, presumably, require some kind of State sanction and support to be at all effective. "OECD National Contact Points", and "Trade Agreement Mechanisms" too would require State participation, since the members of both the OECD and Trade Agreements are in fact States.

The other proposals also focus on encouraging others to develop a willingness to act, whether or not such entities have any self-interest in doing so, or whether they have ever done so in the past. For example, establishing an "Industry Ombudsman" would presumably necessitate that industries (and the business entities that compose them) willingly establish and empower such an Ombudsman, whose mandate may well come into direct conflict with their own commercial objectives. There is no reason to believe that this would be the case, and even if it were possible, it would take substantial effort to convince such entities that it would be in their interest to do so. As well, there would remain the question of oversight, namely whose interests does the Ombudsman represent, and who is he accountable to?

The proposal to use "Company Grievance Procedures" suffers from the same problems, except more so. Company grievance procedures derive from negotiated agreements and are intended to enforce the terms of a contract. As has already been identified, third parties have no standing to bring grievances under such procedures. We can dream that one day they might, but they don't now. For this plan to be plausible it would necessitate a completely new mindset, and potentially enactment of new laws by States. Back to "square one".

International Framework Agreements and Multi-Stakeholder Initiatives are interesting sources of non-judicial grievance mechanisms. In fact, the international BHR standards that will be the basis of normative reasonableness in any such mechanism have, for the most part, been created in such fora. The problem with these proposed approaches is that it is difficult to get agreement (in the form of a treaty or other international instrument) on something like the creation of an international grievance mechanism. For example, while parties to the Global Compact may have been willing to agree to the principles of the Compact, it would be an entirely different thing for them to agree to be bound by an independent and open grievance mechanism that would accept complaints, adjudicate claims of malfeasance, and monitor corporate compliance. While not an inconceivable proposition, and not a huge leap from the apparent monitoring aspects of the Global Compact, we probably aren't there yet.

So, it seems that we are left rethinking what it is that we actually wish to accomplish with a "non-judicial grievance mechanism". Most fundamentally, the objective of such a mechanism is to do what state sanctioned or company sanctioned judicial mechanisms or grievance procedures do, namely enforce compliance and remedy non-compliance with the normative frameworks to which parties are bound. In the case of BHR, this would mean enforcing compliance and remedying non-compliance with accepted international BHR standards.

Two questions arise, (1) how are businesses "bound" by international BHR standards, and (2) how can enforcement and remedial action take place in the absence of consent or state enforcement?

To the first question, I would argue that businesses are bound by the fact of their agreement, or the fact of a generally held consensus on international BHR standards. To illustrate this, it is useful to consider an historical analogy, arising from the Helsinki Accords, created in 1975. The Helsinki Accords were, generally speaking, a political attempt to improve the relations between the Communist bloc led by the then Soviet Union, and the West. The Accords' "Declaration on Principles Guiding Relations between Participating States" (also known as "The Decalogue"), included a seemingly innocuous provision stating that the parties to the Accords would have, "Respect for human rights and fundamental freedoms, including the freedom of thought, conscience, religion or belief." To encourage compliance with these principles by States, compliance monitors such as Human Rights Watch were established. While these compliance monitors could not "enforce compliance", or "remedy non-compliance", they could identify non-compliance and hypocrisy, and in this way do serious harm to the public image and moral sanctity of those who would defy the principles of the Decalogue. Many historians believe that acceptance of these principles by the Soviet Union, and the work of compliance monitors, ultimately empowered dissident movements which could argue that concepts like freedom of speech had been officially endorsed, and were being breached by repression. By agreeing to the Decalogue principles, and creating a situation where State conduct was evaluated in relation to such principles, the focus shifted from the legitimacy of the principles themselves, to the question of State compliance, and avoidance of hypocrisy or stinging criticisms.  In this way, the normative framework was "binding", if only on the "conscience" or "intellect" of those that it applied to.

Similar normative frameworks have already been widely promulgated in the area of BHR, and generally accepted by the actors whose behaviour such frameworks are intended to affect. In this way, they are binding because failure to comply entails risks of adverse consequence, namely the appearance of a failure to live up to commitments or expectations. Companies are far more susceptible to the fall out of such appearances than sovereign States, since companies are extremely sensitive to public opinion, and the opinions of markets and stakeholders, who they rely on for their existence.

So, is the solution to create a "Human Rights Watch" for business? Yes and no. Compliance monitoring already takes place, by Human Rights Watch itself, and by entities such as the Business & Human Rights Resource Centre, which is a site that the Special Representative of the UN Secretary-General on business & human rights, John G. Ruggie (the "SRSG") is associated with. The problem with this sort of compliance monitoring, for our purposes, is that it is too journalistic, too based on hearsay, and not sufficiently based in legal analysis, to be considered a credible grievance mechanism.

Despite the limitations of the compliance monitoring that has taken place to date, there is no reason why the strengths of such instruments, namely the ease with which they can be initiated and scaled up, and their potential for moral suasion, cannot be incorporated into the grievance mechanisms we are contemplating. Moreover, the weaknesses of compliance monitoring could be corrected by establishing a back-end complaint verification system and judicial assessment procedure for alleged violations of BHR standards. Similar to the Business & Human Rights Resource Centre, businesses accused of such violations could be invited to respond to allegations. Unlike the Business & Human Rights Resource Centre however, the new mechanism should engage in fact checking and a sound legal analysis of the complaint, based on real and broadly accepted standards, to determine whether it has any merit. This will necessitate the establishment of an impartial judicial panel, or series of panels. Panel members should be legally trained and unbiased to the extent possible, or equally representative of varied interests (i.e. business and human rights NGOs). They could not be seen to be tainted by political motives or interests.  They would have to be trained and skilled in legal analysis, and open minded to persuasive arguments by all sides. The process could be inquisitorial, so as to alleviate the necessity of advocates, although the use of advocates (via written submissions or otherwise) should be permissible.

Procedurally, a panel would hear evidence and argument. Once the evaluation and assessment of the facts and law is conducted, reports should be issued that come to some sort of a conclusion, in the form of a declaration, on the degree to which a company is compliant, or non-compliant, with the applicable normative frameworks. Reasons should be given in a way that forwards our understanding of BHR standards, and further codifies what is considered an acceptable business practice and what is not an acceptable practice.

The analysis would not be "ethical", or "moral", in nature. Instead, it would be legal and based on actual social sources of BHR principles.  It would be based on the ("hard" or "soft") law as it is, not as interest groups or others "wished" it would be. This would be the only way to make the findings of such an entity credible enough to be viewed as legitimate.

In answer to the second question posed above, we would have to rethink what it means to "remedy" alleged violations of BHR standards and "enforce" compliance in the absence of consensus or state backed sanctions. While there would not be any real powers of "enforcement" or "remedy" that the proposed grievance mechanism could invoke directly, such powers would not be necessary for effectiveness. Publication of findings, and effective use of the media, could well be sufficient to promote compliance and to denounce those entities that are attempting to flout international norms. We have already noted that markets and market actors often take these matters seriously, and that businesses themselves are concerned with their reputations. Such findings would be highly useful for investors deciding on the degree of non-financial BHR risks associated with a company's practices, for consumers to decide who they should do business with, and for developing nations choosing which companies to do business with. There is also an intrinsic value associated with the "hearing" of such complaints, which should be viewed as remedial in itself. Under such an approach, grievances can be aired and those accused of wrongdoing will have an opportunity to clear their name, making the process transparent and mutually beneficial for those with nothing to hide.

This sort of grievance mechanism would be easily scalable, because there would be no need for anyone to "sign on" to such an initiative. The normative frameworks have already been agreed to, and are seen to be "generally accepted". This means that the initiative could be done right now, without the time and costs of consensus building associated with other proposals.  The entity could be overseen by a board of respected persons in association with the United Nations.  The recently appointed Global Leadership Group and the SRSG himself would seem ideally suited for the role.

Those companies that have not signed on to frameworks such as the Global Compact should (and must) not be spared from scrutiny. Generally accepted BHR principles are just that, "generally accepted", and that is enough to hold them out as norms that businesses are expected to comply with. Moral or cultural relativism may be raised as an argument, but if it is, it should be done so explicitly, and it will be for the public, and the market, to determine whether such arguments are persuasive or acceptable. Such arguments will not, however, be a reasonable justification for violating generally accepted norms for the purposes of the grievance mechanism which must be premised on the universality of such norms, if universality is a generally accepted aspect of the norms themselves.

The foregoing proposal would not require action on the part of anyone except those who are aleady interested in seeing a grievance mechanism of some sort come about from the international frameworks that currently exist. It would be a relatively straightforward process to implement, and could be scaled up quickly. In light of the market and reputational interests that are clearly at stake, it could also be highly effective in encouraging compliance, and also generating a body of legal analysis that will further define the parameters of BHR concepts, and thereby further enhance its legitimacy as a benchmark for performance. Furthermore, the findings of such a mechanism would also be useful for markets and investors (including institutional investors and pension funds) to better understand the extent to which businesses are compliant or non-compliant with BHR standards for the purposes of valuation.

Most importantly, such a mechanism would provide a forum for allegations of non-compliance with BHR standards to be heard, and also challenged, by interested parties.   In short, it will help those of us in the field to use what we already have more effectively, to move beyond agreement, and towards action.

Google China and the Existential Question of CSR

2010-01-18T09:10:00.000-08:00

Public deliberations by Google Inc. regarding its operations in China bring to the fore an important and very difficult topic in the field of CSR - what should be done when it becomes impossible to do business in a socially responsible way?

I will define "socially responsible" to mean acting in accordance with social obligations (which include but are not necessarily limited to the laws of states). The "existential" question of CSR arises where corporations have adopted a social responsibility objective, and are presented with business opportunities that may render such a mandate unattainable. This can occur where business operates in an oppressive or patrimonial state jurisdiction, or where operational conditions on the ground are such that violations of fundamental expectations (like violations of human rights, corruption of public officials, complicity in violence or coercion) will inevitably occur.

While a CSR mandate necessitates carrying out business in a socially responsible manner, there is a more fundamental (though less considered) assumption upon which the concept is based. That is, "business", "trade" or "commerce" itself is a social good per se that will and ought to occur and be allowed to occur. This is not an incontestable point, and many ideological perspectives actively challenge that assumption. The concept of CSR, on the other hand, accepts as a fundamental assumption that business is generally acceptable, and in fact should be promoted, with the caveat that it should be promoted within the constraints of legitimate social and stakeholder expectations. The existential question of CSR arises when the very capacity of business to conduct itself within such constraints is called into question. If social responsibility becomes impossible, then a business must choose to abandon a social responsibility objective, or withdraw entirely from the market place.

If one believes that business (reasonably constrained) is a social good, then a decision to withdraw from a market should be seen as a very grave one. The inevitable result will be a decline in commercial activity, diminished product offerings, declining accessibility to new technologies, potential unemployment and lost training or educational opportunities. Such consequences are significant, and must be considered in evaluating the existential question.

The concept of "social obligation" is also not a simple one. The answer to the existential question depends on whether business operations cannot be conducted in a manner that could be considered socially responsible. This would likely necessitate violation of fundamental international laws and norms, such as those found in the International Bill of Rights, including the International Covenant on Civil and Political Rights and the Universal Declaration on Human Rights. It might also include circumstances of forced labour that are proscribed by the core conventions of the International Labour Organization. The growing international customary law expectation of "non-complicity" in human rights abuses is also important, and affects how business interacts with entities that may be in violation of human rights standards.

Local laws will also be of relevance. In the case of China, local laws purport to protect freedom of speech and the press, though there exists a clear gap between the theory and practice of such concepts. In this respect, the actions of state officials may in fact be at odds with state laws. Google, as a US company, is also affected by US law. The United States Congress is considering the re-introduction of an Act entitled the Global Online Freedom Act, which would restrict the way in which US internet service providers and technology companies do business in states that censor or restrict the internet, and use information collected by US companies to persecute people for religious or political expression.

These legal and normative frameworks set out some of the constraints that must be considered when answering the existential question. Others may be discovered through direct stakeholder engagement initiatives, for example with civil society. In the case of Internet privacy, there also exists a multinational normative framework called the Global Network Initiative (the "GNI"). The GNI is a voluntary framework that seeks to monitor and promote privacy and freedom of expression in information and communication technologies. Google itself is a signatory. The organization is a custodian of principles, and also a think tank on best practices. It also has a mandate of seeking collaborative solutions to problems that may arise in these areas through "multi-stakeholder collaboration". The organization could be seen as analogous to other international frameworks like the "Global Compact".

Aside from these external constraints, rational considerations must also be identified. In the case of Google, this might include the capacity to protect proprietary information, the market potential, possible reputational risk, and the cost-benefit of remaining in the market. Google has also adopted internal codes of conduct and corporate objectives (i.e. do no harm) that have internalized external social expectations affecting CSR.

In light of all of the foregoing, the question will be how business can be conducted in a manner consistent with such social constraints and rational objectives, or if it is even worth it.

Time will tell what Google ultimately decides. In the meantime they have taken the strategic step of making their concerns public. This approach is consistent with the "transparency" objective of a CSR mandate. It is also a prudent move from an international legal perspective. By speaking out against what may be inappropriate state demands, Google may be laying the groundwork towards a defense against allegations of complicity. Moreover, by being public, Google will better be able to hold actions of Chinese officials up for scrutiny in relation to Chinese laws, at the least by the general public if not legal administrators. It has been said that "sunlight is the best disinfectant" when it comes to dealing with social ills. A transparency approach allows sunlight to be shone on behaviour that could evolve into corporate complicity in human rights abuse if left in the dark.

Undoubtedly there could be political and legal fallout for such a decision (i.e. disapprobation from Chinese officials; new legislation in the US). The question becomes whether such risks outweigh the risks associated with doing nothing. In this case, Google appears to have concluded that they did not, and chose the route of transparency, with a public consideration of ceasing operations entirely.

That ultimate decision to stay or go will be a decision that Google should take very seriously. Google could be a force for social good in China, as it and other businesses can be in any society. Moreover, to the extent that freedom of expression should be promoted, Google has the capacity to promote that principle even where it is stifled by state actions. Withdrawal will prevent such benefits from being realized. On the other hand, co-option by a patrimonial state is completely unacceptable within a CSR mandate, and must be resisted to the greatest extent possible, or complicity will be sure to result. Transparency is an excellent method of resistance, even if it results in greater scrutiny of Google's corporate conduct. Openness about the challenges facing the company are a show of good faith, and will make it more difficult for unacceptable behaviour to continue without criticism. Any fallout that results should be considered an inevitable result of doing socially responsible business, and can be justified as such by corporate management.

I would go one step further however, and suggest that multilateral framework organizations like the GNI should take or be given a larger and more constructive role in dealing with these sorts of dilemmas. While a corporate organization like Google cannot hold the Chinese government to account through legal mechanisms of the state, organizations like the GNI have the capacity to expose and report on alleged abuses by states, as well as companies. In the same way as it is good for companies to be transparent, so should these international bodies be. Moreover, they should proactively evaluate behaviour in relation to their principle frameworks, and render decisions, similar to the process followed by a court. By making such evaluations and communicating their findings, these organizations can allow the public to better understand what is occurring, and aid in determinations of whether corporate or government actors are behaving contrary to accepted standards of society. This will allow all stakeholders - businesses, governments, investors and the public - to make more informed decisions, and increase accountability for those entities or individuals that choose to defy fundamental social norms.

On the Perils of Rationality Rhetoric in the Normative Arena of Post Crisis Bank Regulation - Or How to Avoid Losing an Argument to Barack Obama

2010-01-17T09:36:00.000-08:00

In my earlier posting "The Rational and the Reasonable: A Useful Distinction for Understanding CSR", I discussed how the navigation of social expectations and obligations requires an understanding of two distinct forms of logic - the "rational" and the "reasonable". In order to maximize "rational" self-interest in a social context, I proposed that business actors must be able to justify their rational interests within a framework of "reasonableness". Unlike rationality, "reasonableness" necessitates justifying behaviour in relation to the shared norms, values and rules of a broader set of relevant societal stakeholders, rather than simply on arguments derived from rational self-interest.

A recent and stark example of the importance of keeping this distinction clear came up this month in the banker pay debate. Responding to the United Kingdom's 50% tax on bank bonuses, and President Obama's proposed "Financial Crisis Responsibility Fee", some leading figures in the US and UK banking industry have chosen to voice displeasure by stating their view that such taxes are "unfair", particularly since many financial organizations affected by the taxes did not receive payments or have paid back received funds.

Implicit in this argument is the premise that no one should be required to pay for something that they are not directly responsible for. If one were to consider such a position from a Sustainability/CSR strategic standpoint, it would be necessary to evaluate whether or not this rhetorical position sufficiently reflects shared principles amongst a relevant stakeholder group, so as to be persuasive in promoting the rational interest of banks in avoiding punitive taxation. If the position is unpersuasive, the strategic interest of the banks will be jeopardized, and the likelihood of punitive consequences may be enhanced.

In this case, the relevant stakeholder group includes (most importantly) the governments of the UK and US that have expressed an interest in imposing a punitive tax and imposing other forms of intrusive regulation. By corollary, the general public, as taxpayer and political overlord of government, is also an imputed stakeholder. Other stakeholders include bank employees, other industry players, and financial regulatory bureaucracies that advise and take direction from political arms of government.

As has been noted in my previous blog on bank compensation, the fundamental interest of government in this debate is to reduce or eliminate systemic risk in the financial sector. Compensation practices that promote risk taking behaviour have been seen to contribute to systemic risk, and are therefore the target of regulatory attention. Regulatory officials and bureaucrats wish to address these legitimate concerns in a way that still protects the "free market" and does not "micro-manage" compensation practices in the financial industry. The general public is concerned with the fact that large amounts of public funds have been expended to address the failures that resulted due to risk taking behaviour. This in turn applies pressure on politicians to take actions that are seen to address this concern.

In light of these background facts and norms, the weak persuasive capacity of the "unfairness" argument of banks [with its implied premise that one should not pay for what one did not contribute to] is revealed. Both governments and the general public, the two most significant stakeholders, have already made payments to the financial industry for a problem that they believe they did not contribute to, and don't feel responsibility for. As such, accepting the "unfairness" argument and its implied premise would necessitate an admission on the part of the government and public (or more particularly their political representatives) that it was irrational to have provided TARP funds to banks in the first place. This will not happen because it would be highly embarrassing for the political leaders that implemented the program to make such an admission. By consequence, these major stakeholder do not, and in fact cannot, share the fundamental premise upon which an "unfairness" argument is based.

Almost inevitably then, such an argument will be viewed as unreasonable. It may be rational, in the sense that banks and their leadership do not want punitive taxes, but their justification for why there should not be any punitive taxes is not "reasonable", and will therefore fail to be persuasive.

Such rhetorical oversight is not inconsequential. President Obama, a well noted masterful rhetorician, prayed upon the illogic of the position in a recent public address when he stated:

And we’re already hearing a hue and cry from Wall Street suggesting that this proposed fee is not only unwelcome but unfair -- that by some twisted logic it is more appropriate for the American people to bear the costs of the bailout, rather than the industry that benefited from it, even though these executives are out there giving themselves huge bonuses.

What I’d say to these executives is this: Instead of sending a phalanx of lobbyists to fight this proposal, or employing an army of lawyers and accountants to help evade the fee, I suggest you might want to consider simply meeting your responsibilities.

This argument by President Obama is, when one understands the distinction between "rationality" and "reasonableness", a rhetorical master stroke. He at once (and correctly) points out the illogic of the "unfairness" argument, then turns that conclusion into an indictment of any attempt to resist his political objectives (something which is more contestable, but persuasive in light of his indictment of the logic of those he considers opponents).

This rhetorical exchange shows the serious risks presented by a failure on the part of business representatives to choose an engagement strategy that gives sufficient consideration to the concept of "reasonableness" in the normative arena. When the competition gets stiff, logical slips and over-emphasis on rational self-interest (as opposed to reasonable shared interests) can ultimately be fatal to self-interest and rational strategic objectives.

The moral of the story is this: However counter-intuitive it may seem, the pursuit of rational interests in a social context ALWAYS necessitates:

Identification of relevant stakeholders;
Comprehension of the overlapping consensus between stakeholders;
Employment of a strategy that pursues rational interests in a manner that is justifiable in light of the overlapping consensus of "reasonableness" and not simply personally held conceptions of rationality.

This is the essence of a Sustainability/CSR approach, which involves engagement and consensus building with an eye to self-regulation responsive to legitimate stakeholder concerns. In the view of this author, a Sustainability/CSR framework of this kind would have allowed wall street and fleet street to avoid the unnecessary slip ups in logic that have only served to increase, not diminish, the likelihood of a very unfavourable regulatory outcome for business.

PBS Interview on CSR with Chip Pitts (co-author of CSR: A Legal Analysis)

2010-01-15T10:12:00.000-08:00

Interesting interview worth watching:

http://video.kera.org/video/1189104943/program/1100712391

Banker Bonus Benchwarmers Beware! Financial Crisis CSR Lessons

2010-01-13T07:35:00.000-08:00

Compensation practices in the financial industry remain a highly contentious topic outstanding from the 2008 financial crisis. For those interested in the concept of CSR, the current debate on what to do, if anything, presents a case study for considering the pros and cons of proactive stakeholder engagement and consensus building by corporations.

CSR has been called a form of "private regulation in the shadow of the law". Private regulation refers to rules that are established by non-government actors to govern themselves. The converse of that, public regulation, would involve a purely government imposed regulatory system with no private involvement. The reality is that there is rarely if ever a purely private or public regulatory process. Instead, regulation has been said to take place within a "normative arena", in which all relevant actors (government, business, NGOs, the public etc.) can battle it out to determine whether and/or how regulation and rules should be established to govern a particular field of behaviour. Within the arena, states and governments work "symbiotically" (cooperatively or competitively) with private actors in making regulatory and governance decisions. States also, however, play the role of "umpire" and are the overseer of private initiatives, with the capacity to intervene where such initiatives are seen to be inadequate. Moreover, states have the capacity to confer "legitimacy" on private initiatives that might otherwise be seen to fall short of "democratic" participatory expectations (for instance of the general public that have no ability to participate in standard setting processes driven by "experts").

By implication, the existence of competing norms is a given in the "normative arena". The only question is whether the existence of such norms will coalesce with a will on the part of capable actors (like government or corporations themselves) to formulate a regulatory or governance system that will guide or constrain the way actors behave.

The actual shape, structure, and tools used in a new system would depend on the outcome of the normative competition. For example, a private solution could be purely voluntary and enforced only through moral suasion or stigmatization of those that fail to participate. On the other side of the spectrum, a public solution could involve mandatory constraints with penalties and sanctions applied for non-compliance. In a globalized world, the public type of solution becomes complicated by multiple jurisdictions, which are often not coordinated. States may work together to harmonize standards and rules, or competition between regulatory regimes may result.

The normative arena is the backdrop to the banker pay debate. There are clearly a number of interests and normative perspectives battling it out for supremacy as we speak. Banks, rightly or wrongly, appear partial to avoiding public intervention that would regulate pay. As will be discussed below, they are not, however, unanimously opposed to new rules, but would prefer that such rules be minimally restrictive.

Governments are facing public backlash against what appear to be huge bonuses. This is in part what might be called a "moral panic", which occurs when legitimate concerns grow and morph to affect areas irrelevant to the original concern, due mainly to fear and resentment. An example of this could be criticism of banks by European legislators for "incentivizing" layoffs by tying bonuses to cost reductions. Such a link between compensation and cost reduction is not at all contrary to business best practices, and is entirely unrelated to the issues affecting the financial crisis. It is clearly an example of legislative over-reach leveraging legitimate concerns to justify unrelated criticisms. Nevertheless, it is undeniable that there are genuine legitimate concerns regarding system wide risk that are clearly unacceptable and must be addressed by responsible legislators. The question will be whether regulation and governance reform is focused on financial risk remediation, or is used to pursue other unrelated social objectives.

The response by the banks themselves in the UK, US and Canada could be grouped into three categories: (1) resist any suggestion of regulation as improper and unfair; (2) acknowledge concerns but wait and see; (3) accept change as inevitable and attempt to influence the consensus through self-regulation. Of these, option 3 is the most consistent with a corporate sustainability strategy.

Option 1 (resist) has appeared to be relatively popular in the UK and US. There are undoubtedly political reasons why this is the case, particularly the looming and at times hysterical spectre of public interventions that could be quite punitive in nature. It may also be that those appearing to employ this strategy are also involved in back channel dialogues to build consensus (through political lobbying etc.). But if that is the case it is not being done publicly or transparently. Time will tell whether such an approach is effective, but to date it doesn't appear to have achieved the desired result. If anything, it appears to have reinforced a belief that those espousing resistance "don't get it" (in the words of US President Obama), thereby making the consensus building process relatively futile, and making more coercive forms of public intervention seem inevitable. Since that is exactly the result this strategy hoped to avoid, it is clear that this approach may well fail dreadfully.

Option 2 (acknowledge, wait and see) has been used mostly in the US, and has had some clear success in appeasing public anger and abating the "moral panic" sentiment that could result in the most undesirable outcomes. It has not, however, done anything to ease the uncertainty or address the clear regulatory risks that hang over the head of the financial industry. For example, some of the US financial sector recipients of so-called TARP funds have been required to participate in a compensation review process with an Obama appointee referred to as the "pay czar", Kenneth Feinberg. The pay czar's job has been to review compensation decisions and practices. Participating banks were required to submit "arguments" supporting their pay decisions. Unfortunately for the banks, it does not appear that there were any specific rules or principles that could be used to guide such analyses, other than the broad objectives set out in the TARP legislation and regulations, which applied a "Public Interest Standard" that amounted to a direction that that banks should not pay "too much", and should defer compensation as a means of reducing risk. It is not clear whether the pay czar developed any further frameworks with banks themselves that take into account their legitimate operational needs, or worked with other experts and analysts to do so. In the absence of such a process, it is hard to conceive of how decisions could have been made in the first rounds of compensation review in anything other than an arbitrary and face-saving manner.

While supporting the "face-saving" exercise by participating in a contrite manner, "waiting and seeing" before undertaking earnest engagement and consensus building has meant that the banks themselves have contributed (by omission) to the uncertainty regarding what principles to apply to compensation decisions. Uncertainty is not a desirable situation for banks in any circumstance, and particularly not in some of the most financially unstable and politically uncertain times in the last century. The "wait and see" approach is tantamount to a player in the "normative arena" sitting on the player's bench and letting others battle it out for normative supremacy. If this is being done in hope that the game will simply go away, it would seem a risky strategy. There appears to be an unabating will to do "something". Moreover, the game isn't getting any less competitive. There would appear to be little benefit to sitting on the sidelines letting other players rack up points that may prove insurmountable. Wait and see strategies necessarily mean that a "first mover's" advantage is lost.

That brings us to Option 3 (build/influence consensus). A variation on that approach was taken by the large Canadian banks, each of which introduced their own self-imposed constraints on compensation practices in the wake of the financial crisis that attempted to address concerns regarding inappropriate incentivization of risk. This effort was not solicited, and it does not appear that the move was formally coordinated. It is also not clear the extent to which formal engagement processes were undertaken in the development of the frameworks. Nevertheless, the frameworks appear to address the most obvious concerns of stakeholders (particularly government, certain shareholders and the general public) regarding compensation practices. Each of these institutions have recently adopted "say on pay" votes for shareholders. It may well be that these frameworks were adopted and publicized in anticipation of such votes.

It should be noted that the Canadian banking industry is generally more regulated than the US banking industry. No Canadian banks failed, and as such there is much less public sentiment for legislative intervention. As such, the normative arena is much less contentious. Despite this, the banks were proactive in addressing legitimate concerns which may have been the subject of legislation if they were not effectively addressed by the banks themselves. This approach has, to date, been viewed favourably and has appeared to have been accepted as a legitimate solution to the risks revealed by the financial crisis.

What can we learn from all of this? First, that the competition of the normative arena may take place whether or not an individual actor chooses to play. As such, it may not be an effective option to "take your ball and go home", or to resent and resist the fact that the game is being played at all. Similarly, being a passive and humble observer to the game may also not be the best approach. While belligerence towards a normative dialogue may be inappropriate, that does not mean affected actors must absent themselves from the contest. Instead, it is appropriate, and in fact expected, that all players will show up and play the game to win. In the context of banker pay, a "win" might entail addressing legitimate systematic risk concerns while avoiding a slop over of regulation into unrelated and potentially detrimental aspects of financial operations. By not constructively and proactively participating in a consensus building process, banks that may be affected by new regulation are leaving themselves more exposed to an unfavorable consensus than may be necessary.

The Canadian approach could be seen as a model for other financial actors facing inevitable regulations. Formulating a private voluntary consensus that addresses legitimate concerns could well influence a public regulatory approach. It may not be enough however, and public regulation could well end up being more invasive and harmful to the interests of banks than it needs to be. But, at the least, efforts to influence the consensus could provide a sound position from which to criticize regulatory proposals that go "too far", while not appearing to be a stalwart - which is never a legitimate stance. Indeed, an engagement and consensus building approach enhances corporate legitimacy, and the likelihood that an inevitable normative discourse will result in an acceptable outcome.

Such a strategy is the essence of "sustainability" - which involves responding proactively to corporate social obligations, even if the "hard law" doesn't require it. Consensus building and engagement is an essential component of sustainability. Therefore, let the banker compensation debate serve as a lesson for us all - benchwarmers beware!

CSR and Corporate Sustainability - What's the Diff?

2010-01-09T10:26:00.000-08:00

Corporate Social Responsibility (CSR) and Corporate Sustainability are terms that are often used interchangeably. There is no generally accepted definition of either CSR or Corporate Sustainability. In my view the terms are essentially synonymous, with the only real difference being the perspective that each term implies.

Corporate Sustainability simply describes the capacity of a business to endure over time and extend its status quo into the future, within the context of societal expectations. In this respect, Corporate Sustainability is a concept viewed from an internal perspective, that is to say internal to the firm or organization that seeks to be sustainable.

CSR on the other hand is viewed from an external perspective, in particular from the perspective of a stakeholder evaluating the conduct of a business organization. CSR pertains to the expectations and obligations that such a business organization must meet in order to be considered "legitimate" by such stakeholders. Legitimacy is, according to the theory of CSR/Sustainability, required for a business to be sustainable.

Corporate Sustainability strategies therefore can be seen to respond to CSR expectations. It is in this way that the two concepts are linked. The meaning of the two terms are essentially synonymous, with the salient difference being the perspective from which they are considered.

The Rational and the Reasonable: A Useful Distinction for Understanding CSR

2010-01-08T17:03:00.000-08:00

In my work as a lawyer advising business clients on labour, employment and human rights issues I have found that there is a general confusion about two types of related but distinct forms of logic: the "rational" and the "reasonable". The distinction between the rational and the reasonable has been recognized explicitly or implicitly by philosophers like Max Weber, Chaim Perelman, and John Rawls. In my view, understanding the distinction is of essential importance to understanding Corporate Social Responsibility (CSR) obligations. Proper understanding of the distinction can allow business to maximize fundamental business objectives like profitability while ensuring social sustainability. Failure to recognize and act upon the distinction is a recipe for disaster. Let me explain...

Both rationality and reasonableness refer to the character of logical validity. If we say someone is acting "rationally" or "reasonably", we mean in both cases that they are acting logically. There are occasions where the terms will be synonymous. Sometimes however, there will be an essential distinction between the terms. For example, we can say that someone is acting "rationally", but that they are entirely "unreasonable". We may, to use a blunt example, say that a criminal acted "rationally" because they carried out their crime in a logical way. They have acted "unreasonably" however because we believe that crime is wrong. Such a statement makes sense because of the subtle difference between the terms. Rationality is a form of logic that flows from premises that are self-evident or incontestable. Such premises may be objectively or empirically verifiable. They may also simply be squarely within the personal preference of the actor under consideration. In this sense, economic actors are said to be "rational" insofar as they act upon their own preferences. Those preferences, as logical premises used to draw logical conclusions regarding the "rationality" of the economic actor, cannot be contested. We cannot challenge someone's preferences as "invalid" or "untrue". A person's preferences are their preferences, and as such are self-evident and uncontestable facts, to the extent they are identifiable.

Evaluations of "reasonableness" do not flow from self-evident premises. Instead, we evaluate reasonableness based upon shared preferences, or values, or other normative considerations which themselves may be subject to contestation because different audiences may have different understandings of what is reasonable or not. Reasonableness, as a question, is therefore determined by considering the preferences, values, or interests of a broader social audience than simply the actor being evaluated as "reasonable" or "not reasonable". For an assessment of reasonableness or unreasonableness to be logically true, the one making the assessment must give consideration to whether the criteria used to assess reasonableness are persuasive, and then consider whether the evaluated actor is acting in a way consistent with acceptable premises. Only then will the conclusion of "reasonableness" or "unreasonableness" have any meaning. Conversely, this means that a reasonableness assessment can be challenged on the basis that it has applied the wrong premises, meaning that the criteria of "reasonableness" are not persuasive and should not be used, or that the evaluated actor actually has acted in a manner consistent with such premises.

On the contrary, if a conclusion of rationality is drawn it will be valid so long as the premises are empirically true, and the evaluation is logically sound. Normative concepts, such as values etc., cannot be shown to be empirically true in this way (except to show that they are empirically shared by a salient audience and are thus appropriate for such an audience to use in a reasonableness evaluation). As such, reasonableness evaluation is not an empirical exercise, as much as it is an act of persuasion, employing the logic of argumentation.

If you're still reading this I thank you! Here's where it gets interesting. Social obligations, like CSR obligations, or law, are inherently normative. They are not "self-evident", in that they represent logical constraints that are founded upon normative values, which themselves are subject to contestation. The question of "compliance" with CSR obligations, or any social obligations for that matter, will therefore not be based upon a consideration of empirically self-evident premises. Instead, compliance with CSR and social obligations will be analogous to a reasonableness evaluation, and will employ the logic of argumentation. Compliance must therefore be considered in two stages (1) what premises/constraints (read: CSR obligations) apply AND (2) is the evaluated actor acting reasonably within such constraints? A determination of compliance (reasonableness) will necessarily depend upon the answer to both of these questions.

This distinction has great significance for making sense of how businesses must approach compliance with CSR. Inherently, CSR obligations will not be satisfied by "rational" arguments that are not persuasive to the appropriate audience. The appropriate "audience" in the case of CSR for most businesses will comprise legitimate stakeholders. Where a business has legitimate stakeholders that do not share a businesses profit objective, or that have interests or values other than that objective, then the fact of profitability will not be a persuasive argument for compliance. This may seem self-evident, but as an advocate for business, I can attest to the fact that it is often very tempting for businesses making representations or submissions to human rights or labour tribunals to attempt to over-rely on arguments associated with "operational efficiency" or "business objectives". Such arguments may be relevant, but they are not likely in themselves to be persuasive. That is because the applicable premises used in human rights and labour relations fora are based upon interests that are divergent from the profit motive. To be persuasive in such contexts, the business actor must be able to justify their "rational" interest within the applicable "reasonableness" framework.

This analysis leads to several useful conclusions for understanding CSR. If a business determines that complying with social expectations or obligations is desirable, then it must see business objectives as being pursued within the constraints of such obligations. For example, a profit maximization objective means that profit will be maximized insofar as the addition of profit does not violate these identified constraints. It will then become necessary to clearly identify what such constraints are so that they are not inadvertently violated. Once these constraints, which we may call "rules", are identified however, the business will be free pursue its objective to the greatest extent possible, so long as the rules are not violated. This is already how most businesses operate within the context of legal obligations, either consciously or unconsciously. The approach can be extrapolated to CSR types of social obligations.

Identification of constraints can best be done through consensus identification processes such as stakeholder engagement. Such processes allow business to identify the interests, values and normative frameworks of relevant stakeholders, so that the parameters of "reasonable" action can be determined in advance of action. Once understood, and allowing for the possibility that such norms may change over time, the business will know the parameters within which they can pursue their rational objectives (such as profit) in a way that is reasonable. Achieving such "reasonableness" is synonymous with achieving "compliance".

In conclusion, while it is tempting to view the rational objectives of business as being synonymous with reasonableness objectives like legitimacy, or compliance with social obligations like CSR or law, they are in fact quite distinct. CSR and law, once identified, should be viewed as constraints within which rational objectives can be maximized. Rationality and reasonableness are not either/or propositions. Instead, they are two different types of logic that can and should co-exist and that must be given consideration in the pursuit of business objectives within a CSR mandate.

What is Lex Sustineo?

2010-01-05T06:07:00.001-08:00

I am currently working on a Master's of Law (LLM) thesis on the topic of what I call "Lex Sustineo". Lex Sustineo is latin, roughly translated to mean "law of the sustainable" or "law to endure". I thought the phrase useful in describing new types of emerging social obligations which are dramatically changing the way business operates. These social obligations are often referred to as "corporate social responsibility" (CSR), "sustainability", or even "corporate legitimacy". My interest in the topic stems from a question that continually pops into my mind when I hear these phrases: "what do they all mean!".

I am a lawyer by training and trade. As such, I approach problems from a certain perspective. In the practice of law, I deal with social obligations all the time. Law itself is a social obligation, or is composed of social obligations. Law creates constraints on the behaviour of social actors. To my mind, the concepts of sustainability and CSR and legitimacy are analogous. They purport to entail constraints on commercial actors in the way they carry out their business operations. The goal of this blog will be to understand the nature of these obligations, as a form of Lex Sustineo that can be used to guide the behaviour of business managers in the conduct of their affairs.

This is not to say that CSR and law are synonymous. In fact, they are by definition not completely synonymous. CSR, to the extent that its content has been identified, necessarily goes beyond what would be conventionally understood as "legal requirements". This is what the phrase "beyond compliance" means. However, I think that it is mistaken to go from this realization to conclude that the concept of law is entirely irrelevant to the concept of CSR. On the contrary, I believe that law provides the most highly developed relevant set of concepts to help us truly understand what CSR really means. By understanding how law operates, and how it is similar (or even identical) in structure to CSR, we can better use CSR to guide behaviour in order to achieve the goal of sustainability.

To really understand what a CSR obligation looks like, I believe that it is necessary to understand its content objectively. By that I mean that a CSR obligation, to the extent that it is real, cannot be merely a subjective concept that varies from person to person, or organization to organization. In other words, for CSR to actually operate as an "obligation", as opposed to simply a moral opinion, there must be some objectively ascertainable norm, or rule, that can actually be used to guide behaviour, whether or not the rule itself is subjectively believed to be morally correct. This point may seem controversial. I don't believe that it should be. Nevertheless, it is an idea that I will develop in future blog postings.

This is where the concept of law becomes essential to understanding CSR and sustainability. Law is effective at creating obligations which serve to guide the behaviour of those to whom the law applies. For CSR norms to be effective, they will have to do the same thing. As such, it will be useful, in understanding CSR, to better understand the nature of law, and to see where CSR is similar to traditional forms of law, and where it diverges. To do this, I will also challenge traditional understandings of "law" which I think are far too narrow, and which ought to be broad enough to encompass the sorts of social obligations that are emerging with the concept of CSR.

Without presuming my conclusions, which are far from complete, I'll leave this posting with some ideas that I would like to develop in future posts:

Law should be understood as a logical system providing justifying reasons for action;
In terms of logical structure, law is composed of a set of conditional constraints (conditioned on the occurrence or potential of a certain kind of social action); that can be used by a social audience to evaluate the social actor; and which may give rise to conditional imperatives (in other words consequences) positive or negative, that affect the evaluated actor;
CSR, insofar as it creates social obligations of a binding nature, is logically similar (if not identical to) the logic of law and should be understood as such;
Law is not necessarily moral, though subjective morality, insofar as it is shared by a political community, may be a reason why a law is law for a given society;
Laws, and CSR obligations, do not necessarily derive from the state authorities and can emerge from non-traditional authoritative sources;
Evaluations of compliance with laws (in the broad sense referred to above, including custom), or CSR obligations, do not necessarily have to be performed by the state or centralized authorities;
Consequences for non-adherence to law or CSR obligations can be imposed by entities other than the state or central authorities to be consequential.

To be continued...

Second Consultation on Sustainability Reporting Held - Final Report Pending

2010-01-04T13:56:00.000-08:00

On December 7, 2009 a consultation meeting was held in Toronto on the topic of Sustainability Reporting (in particular corporate "Social" performance reporting) for the Government of Ontario.
The consultation is being organized by the Hennick Centre of Business and Law at Osgoode Hall Law School, in association with Jantzi Sustainalytics, the Association of Chartered and Certified Accountants (ACCA), and further to an earlier consultation of the Ontario Securities Commission.

The background paper for the consultation, which I co-authored, can be at the following link...

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1517953

I can say that the results of the consultation were very interesting. Our findings could have a significant impact on the direction of Sustainability Reporting in Canada. Our final report is currently being prepared and should be released later this month or early February 2010.

Social Disclosure Consultation - Ontario Securities Commission

2010-01-04T13:31:00.000-08:00

The findings of the Ontario Securities Commission (the "OSC") on enhanced Sustainability Reporting have been released to the Government of Ontario...

On December 18, 2009, the OSC issued Notice 51-717 Corporate Governance and Environmental Disclosure and the report to the Minister of Finance regarding our corporate sustainability reporting initiative. The links to these documents and the accompanying news release can be found here:

http://www.osc.gov.on.ca/en/NewsEvents_nr_20091218_osc-51-717-cor-gov-env-dis.htm

http://www.osc.gov.on.ca/en/26531.htm

Note that a second report is currently being prepared on the topic of Social Sustainability Reporting (co-authored by yours truly) that should be released by early February...stay tuned!