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How to stop bad things happening

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The importance of non-financial due diligence (its more interesting than it sounds)

We should no longer wait for people to fall off ladders – or to be killed in factory fires – before setting clear codes of behaviour, including steps to prevent the bad thing happening in the first place. Any business that does not take such steps might be found to be negligent or reckless – a criminal offence in some cases. So it is with all other business and human rights issues. Whether we support internationally binding treaties to hold businesses to account, or market-based incentives, or a mix of the two – the due diligence question is central to any discussions on accountability.

This commentary is based on conference I co-moderated in Copenhagen on 25 November with over 100 representatives from government, business, civil society and trade unions. I am grateful for the permission of the Mediation and Complaints-Handling Institution for Responsible Business Conduct (the Danish “National Contact Point”) for letting me reproduce parts of my report here. The full report is available on their website.

1.  Overview

Non-financial due diligence is now a critical element of the major international mechanisms developed by governments to provide greater incentives and requirements for business to act responsibly. The 2011 United Nations Guiding Principles on Business and Human Rights (UNGPs) define such due diligence as:

An on-going risk management process that a reasonable and prudent company needs to follow in order to identify, prevent, mitigate and account for how it addresses its adverse human rights impacts. It includes four key steps: assessing actual and potential human rights impacts; integrating and acting on the findings; tracking responses; and communicating about how impacts are addressed.”

The OECD takes a similar approach but spans issues beyond human rights alone. In relation to supply chains, the OECD defines due diligence as:

“A comprehensive, proactive process to identify the actual and potential negative social, environmental and economic impacts of an organizations decisions and activities, with the aim of avoiding and mitigating those impacts.”

So, it is clear that non-financial due diligence is, firstly, about understanding various types of risk and potential adverse impacts and then, secondly, developing systems of prevention and mitigation to eliminate or reduce them to acceptable levels. In addition, due diligence is also related to remedy. The ‘National Contact Point’ (NCP) system of the OECD is one of the state-based non-legal remedies that attempts to mediate grievances concerning international companies and due diligence is a central aspect in many of these cases.

Due diligence is fundamental in two ways:

  • First, when harm has occurred, it needs to be established whether the business had undertaken adequate due diligence in light of the context and the salient non-financial issues it was facing?
  • Second, even if a harm has not occurred, is the business undertaking adequate due diligence when there is a real risk of a harm occurring?

Although most human rights issues, for example, have yet to be codified in the way health and safety law has, the principle is the same: those responsible should not wait for the harm to occur if a business is behaving without due care and attention. The UN Guiding Principles on Business and Human Rights, upon which the revised 2011 OECD Guidelines on Multinational Enterprises are in part based, call this “knowing and showing”. And so the critical questions are: “How much knowledge is enough?” and “How transparent should a business be about having such knowledge?”

Although due diligence is not a new concept (financial due diligence has existed for generations, and anti-bribery measures have developed over the past generation), its application to social issues (i.e. human rights) is relatively new and also requires a fresh approach. National Contact Points sit at the fulcrum of a fine balance: ignore the non-financial due diligence undertaken by companies that still make mistakes then there is little incentive to undertake the due diligence in the first place; but, on the other hand, to overly reward a business for its due diligence when a harm has occurred is to undermine accountability. Getting this balance right – setting an expectation for ‘reasonable’ due diligence – is precisely where many NCPs find themselves today.

It is therefore not surprising then that due diligence is the fastest growing area of OECD NCP cases. Whilst only a minority of cases get beyond the initial assessment phase overall, due diligence related cases are more successfully resolved than others. There are also a number of trends showing that now a wide range of business relationships are being presented to NCPs for consideration well beyond direct investments: from supply chain to financing to other types of specialist services.

2.  Background to the OECD Guidelines and the NCP system

The OECD Guidelines on Responsible Business Conduct is the most comprehensive, government-backed, international corporate responsibility instrument. They place a legal obligation on the 46 adhering Governments (34 OECD member states, and 12 non-OECD states) to:

  • Promote the use the Guidelines as an essential component of open trade and investment policies;
  • Establish National Contact Points to further the effectiveness of the Guidelines.

The revised Guidelines themselves cover a broad-range of corporate responsibility issues, in other words: Disclosure; Human Rights; Employment and Industrial Relations; Environment; Bribery, Bribe Solicitations, Extortion; Consumer interests; Science and Technology; Competition and Taxation. Since 2001, 256 complaints have been filed by NGOs and individuals, and a further 175 have been filed by Trade Unions. Of the NGOs cases: due diligence has figured highly in a significant percentage of them: 65 cases have been due diligence specific, 124 have related to business relationships (71% of which have related to due diligence) and 186 have related to human rights (of which 98% have related, at least in part, to due diligence).

The new version of the Guidelines were adopted by the 2011 OECD Ministerial Council Meeting and the then US Secretary of State, Ms. Hillary Clinton, remarked:

“If you look at these guidelines, they will be helping us determine how supply chains can be changed so that it can begin to prevent and eliminate abuses and violence. We’re going to look at new strategies that will seek to make our case to companies that due diligence, while not always easy, is absolutely essential.”

In the case of Supply Chain Due Diligence, the OECD has developed a five-step approach for how businesses should conduct due diligence:

Step 1 – Establish strong management systems: Policy, internal capacity, supplier engagement, internal controls over supply chain

Step 2 – Identify, assess and prioritise risks in the enterprise supply chain: map supply chain, prioritize based on severity of harm (sector, counterparty, and site for high-risk issues), use existing networks

Step 3 – Manage risks in the supply chain: inform senior management, fix internal systems, build leverage, use existing supply chain networks, workers reps, non-traditional partnerships, build capacity

Step 4 – Verify supply chain due diligence: where relevance, monitor, audit assurance, etc.

Step 5 – Communicate and report on supply chain due diligence: with due regard for commercial confidentiality and competitive concerns.

A number of observations can be made about how due diligence should be understood in relation to these Steps:

  • First, the nature & extent of due diligence depends on the size, context and severity of the impact. This is highly context specific but having said this, there need to be comparatives – so NCPs need to look for benchmarks for what could reasonably be expected of a company in such a context in due diligence terms. Sometimes law itself codifies the due diligence requirement, other times it might be multi-stakeholder approaches, guidance published by authoritative bodies (such as the EU, OECD or UN), other NCP cases, export credit requirements and so on. Obviously, the due diligence expectation is heightened in countries of particular human rights concern, or where the business sector itself is hazardous. Whilst the due diligence expectation on small companies might be less generally, this will not always be the case. For example, the law does not exempt small companies from being racist or sexist in their recruitment practices, and so it is on issues such as fundamental health, safety and discrimination issues. It is also the case that small companies in some business sectors can have a very high human rights impact (such as internet applications that impinge on the right to privacy or freedom of expression, or private security firms, for example).
  • Second, prioritizing of risks by business is acceptable and in fact essential, as due diligence costs time and money – but the prioritization must be based on the risks to rights-holders and not to the business itself. In the UNGPs, this is what is meant by “saliency” – the issues that are most relevant to the potential risks and negative impacts faced by rights-holders. This is a human-centric approach, which might be different from classic materiality tests required by existing national law. Whilst no issue or human right should be dismissed a priori, business can focus in on salient issues for most of their due diligence. What is important is that rights-holders and other stake-holders are involved in the verification of what these salient issues are, and that the process is reviewed periodically, as the nature of a business, or its external operating environment, is subject to change.
  • Third, there is no ‘zero tolerance’ requirement – it is about working with suppliers, and other business partners, in order to best prevent and mitigate risks. If a supplier, customer, contractor or other business partner is found to be impacting negatively on human rights, or operating below reasonable due diligence standards itself, then the company in question should engage in remedial activities – the scale and urgency of which are determined by the risks posed by the other business. Businesses should never be in a position where they are causing or contributing to the abuse of human rights, or impacting negatively on other requirements of the OECD Guidelines.
  • Fourth, it is not just ‘one layer deep’ – depending on the severity of the impact, due diligence might need to extend multiple steps down a supply chain. Just as the size of the company is in itself no exemption from due diligence, nor is the position of a supplier within a complex supply chain. Companies might expect first tier suppliers to take full responsibility for the second tier and so on, but in reality it is about the severity of the impacts themselves and the nature of the relationship along the value chain. For example, it might be, for commodities with extremely high human rights impact, that it does not matter if the brand at the end of the chain is ten or twelve steps removed – it is still expected to prevent and mitigate the risk.
  • Finally, business must use its own leverage and build additional leverage by working with others wherever possible, including with competitors. The greater part of non-financial due diligence should be a “pre-competitive” issue as leverage is greater when industries come together, sometimes also with other stakeholders, to act. Companies are required to “know and show” and therefore some level of transparency is necessary – whether this be full public disclosure, or sometimes sharing within multi-stakeholder contexts in ways that are clearly not violating anti-trust requirements.

3.  Some of the challenges

One business reflection was that human rights language can be too abstract and the use of the term ‘due diligence’ can also be ambiguous. It is often not tangible enough for the business manager not educated in human rights, and therefore mapping human rights onto management language was seen to be essential. One example is the language of risks. Many in business will assume that “risk” means “enterprise risk” and not “the human risk to individual people”. It is also not always useful to frame human rights risks as reputational risks – as sometimes they are not, or the reputational risk is too small to maintain the attention of senior business managers. Another perspective was that there is now serious legal risk for those businesses failing to undertake due diligence on issues relating to human trafficking or forced labour, for example, and the withdrawal of ‘social licence’ by communities or customers can hit the bottom line of many major companies.

It is clear from the discussion that non-financial due diligence, particularly that not codified in law, can be hard to quantify in a company. It is hard to put a value on prevention, on the valued added of measures that to ensure that something does not happen. The cost to a company due to industrial action, or a community blocking access roads to a mine for example, can be calculated, but it is much harder to set against this the value of mitigations that have reduced the likelihood of negative impacts on rights holders. This suggests that a “cost-driven” business case for non-financial due diligence can be the wrong way to look at it, as it will almost always be impossible to measure the effectiveness of due diligence in such a way. Due diligence might be an issue of legal compliance, or a compliance with internal codes but the business case beyond this is better set in “social licence” terms – that it maintains long-term relationships between a company’s activity and the society in which it operates. In other words, the business case for non-financial due diligence needs to be made in societal terms – the loss of trust and legitimacy that will be made if it is not employed, as well as the reputational and legal consequences of acting in a reckless or irresponsible manner.

Several at the event reflected that the full array of incentives needed for the level playing field are not yet in place, and that some companies will continue to ignore requirements that are not legally binding. Due diligence regulation is emerging in relation to particular issues (such as corruption, conflict minerals, human trafficking or high risk countries) but NCPs themselves should operate as if the knowledge requirement is clear and well stated. In other words, the threshold for “known” and “should have known” should be regarded as being equal. Wilful ignorance should never be a defence when it comes to not carrying out adequate levels of due diligence.

 4.  Lessons learned

NCPs seem to have a relatively high number of cases on due diligence for what is a relatively new issue. This is particularly complex in relation to supply chain management and contractual partners. One of the main problems is to identify and get closer to understanding of when a company is directly linked to what goes on in its supply chain. Given the company needs to focus of the scale of the abuse, and its relationship to it, sometimes it means attempting to manage issues that are twelve layers down the supply chain.

A key reason for the rejection of many cases by NCPs is insufficient documentation to demonstrate the direct linkage to the company. However, paperwork should not become the standard here – cases should focus less on whether the company had the knowledge or not and more on whether the company should have had it within that specific (high risk) context. Then it is up to the company to demonstrate whether or not its own due diligence procedures were adequate for the challenges its affected stakeholders faced.

There are a number of external benchmarks that NCPs can use when assessing whether a company had done enough due diligence:

  • The law. Direct legal liability is beyond the jurisdiction of NCPs, but other laws – particularly those that mandate disclosure – increasingly incentivise due diligence. Sometimes governments have issued specific due diligence guidance relating to this legislation that represents a clear benchmark.
  • Other due diligence requirements from government. Increasingly Export Credit Agencies (ECAs) are employing non-financial due diligence which might well inform similar contexts to the company in question, or possibly the company itself has already undergone due diligence by an ECA. Similarly, a number of governments are developing their own due diligence requirements for public procurement which might well be relevant (sometimes this relates to specific issues such as human trafficking or forced labour).
  • Multi-stakeholder initiatives and approaches can also set pre-competitive due diligence requirements that represent a relevant benchmark for NCPs to refer to, even if the company in question is not a member. The Bangladesh Accord, below, is an example of this.
  • Publicly available specific due diligence guidance developed by authoritative international bodies might be relevant, such as that produced by the OECD (e.g. Textiles, Finance, Conflict Minerals), European Union (e.g. ICT, Oil and Gas, Recruitment Agencies), and national governments (e.g. the UK government’s guidance on Cyber Security companies), National Human Rights Institutions or Multi-government-backed regional centres (e.g. the Sector-Wide Impact Assessments in Myanmar on Oil and Gas, Tourism and ICT).

5. Conclusion

The OECD Guidelines and UNGPs have become the building blocks for much international thinking on responsible business conduct through other bodies such as the EU, ISO, ILO, G7 and now even a number of global sports federations. But the whole “Protect, Respect, Remedy” project of recent years will only be successful if “knowing and showing” becomes commonplace, in other words expectations of knowledge of non-financial risks and impacts become clearer and that not knowing ceases to be a defence (the gap between “known” and “should have known” disappears). This is a fundamental shift from thinking of many corporate lawyers for decades, when it has been assumed that knowledge over non-financial risks, particularly those that sit outside the direct control of the company, is not in the interest of senior managers. Over the past five years, governments have started to send the opposite message – that they expect businesses to actively seek such knowledge and act on it.

Therefore, more work on non-financial due diligence is essential, and NCPs have a significant role to play – not least because their statements do not just set retrospective expectations on individual companies, but begin to set expectations for other companies in similar contexts.

The question: “how much due diligence is required?” can only be fully answered in relation to the specific context of the specific business relationship or investment. NCPs and other decision-makers will be looking to benchmarks from other similar contexts. Given that there are an increasingly number of publicly available resources from credible sources (i.e. from government-backed organizations with multi-stakeholder involvement) relating to specific high-risk markets, products/services or high-impact issues, these need to be mapped and fully available to all NCPs. So the answer to the due diligence question will always be different for each company in each context, but comparisons will be made between contexts also. Non-financial due diligence is becoming a pre-competitive issue for all businesses and there is now a business case to sit down with governments, competitors and other stakeholders to agree what represents adequate due diligence looks like before complaints arise.

Why does business still undervalue women?

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By Rachel Noble and John Morrison

(kindly reproduced from www.ihrb.org)

A new report by ActionAid UK, Close the Gap!, finds that women’s wages and labour market participation relative to men’s cost women in developing countries an astounding US$9 trillion every year. This despite unprecedented economic opportunities opening up for many women as a result of expanding global supply chains, equal rights for women in many countries’ constitutions, and widespread ratification of international labour standards including equal pay for work of equal value.

It would be unfair to blame business alone for this state of affairs: discrimination reflects the norms prevalent in wider society. The scale and persistence of women’s economic inequality starkly illustrate the power of prevailing social norms, which discriminate against women. Such norms place inherently lesser value on the work women undertake, denigrate and deny women’s role in decision-making, and curtail women’s opportunities to fulfil their potential and realise their rights throughout their lives.

Discrimination against women occurs at every level of society, from institutions at local to global level, and within the social, cultural, political and economic spheres. It has led to an economic order that systematically exploits women, and one that is further confounded by flawed economic policies and corporate practices that depend upon the subsidy of women’s cheap labour to boost profits, economies and GDP. This labour includes the hugely disproportionate amount of care work women are expected to undertake – caring for children, the sick and the elderly, preparing food and fetching water – so vital to our social fabric and for healthy workforces. Such care work is all the more demanding in contexts of poverty, while further curtailing women’s opportunities to secure regular, decent work.

As a result, women constitute some 60% of the world’s poor. They are vastly over-represented in the lowest paid, precarious jobs, enduring degrading working and living conditions, with little access to social protection or to justice where rights violations occur. Such a system is both unjust and socially and economically unsustainable, not least because businesses are missing a huge pool of potential talent by under-employing and underinvesting in half of their workers. The ILO estimates that an additional $1.6 trillion could be generated in global output by reducing the employment gap between women and men, which could help eradicate poverty and drive prosperity for all.

Businesses, whether small companies or multinationals with supply chains spanning continents – do not operate in a vacuum. They are situated within societies and, as such, tend to reflect and reinforce prevailing social norms, which combine with harmful economic policies and further drive women to the bottom of the pile.

So what should business do? Following national laws is the first step and most countries (but by certainly not all – around 90% still have at least one law restricting women economically,) outlaw overt discriminatory practices relating to recruitment and pay. However, discrimination is much more subtle and pervades every society at every level. Women are vastly underrepresented in the Board Room in every country, despite evidence that the financial returns for companies with three or more women on their boards are better than those lacking women at the top. And women were again a small minority on panels at the World Economic Forum in Davos last week.

Changing such patterns of behaviour requires much greater awareness and action by both men and women – as the “No thanks to all male panels” campaigns in Norway, Sweden and Australia have been demonstrating. Businesses can also introduce policies to help redress the balance, such as offering flexible work and shared parental leave to allow women and men to balance caring responsibilities, and pay their taxes to pay for public services, so vital to reducing the burden of care. They can seek to ensure women working in their supply chains have secure contracts, earn a living wage, are entitled to maternity leave and sick pay, and – vitally – have the right to engage in collective bargaining to help safeguard their rights.

Another issue which is perhaps less common in the boardroom but much more prevalent in supply chains is that of sexual violence. Human Rights Watch has estimated that many thousands of women have been abused in the US agricultural sector – many of them migrant workers and many of the cases unreported. Sexual violence is endemic in agriculture in many parts of the world, as cases in India and East Africa suggest. Indeed, violence against women in the world of work, including sexual violence, is so widespread across so many sectors that the ILO and trade unions are pushing for a new ILO Convention on Gender Based Violence.

The approach taken by business needs to be one of due diligence: preventing and mitigating abuse and discrimination as much as possible but also providing adequate remedies when harm has occurred, and cooperating fully with legal cases which attempt to give victims redress for harm done.

But there is one game-changer that should not be overlooked. Businesses still tend to wait until they find evidence of discrimination or abuse before acting. This often means abuse goes undiscovered and underreported. Widespread discrimination against women in a society is likely also to be found in the workplace. If it is known that women workers are particularly vulnerable to exploitation – be it in agriculture, domestic work or the apparel sector – then businesses should not wait for evidence before taking action. Cases suggest that in countries where abuse is most endemic, women are least likely to report abuse to the company, often fearing repercussions if they do or lacking faith that the business can actually do much about it. So corporate human rights due diligence in relation to a known risk such as gender-based discrimination means being proactive and using all available leverage to increase transparency and accountability of risk-factors. Businesses that do not act will one day find themselves in court, but long before that their social license should be challenged by women and men everywhere.

Business is clearly an important actor, but it is not the only one. Some of the worst discrimination is in the informal sector or the home. Transforming the status quo requires communities, civil society and government to act to change societal norms, to rethink economic policies, strengthen legislation, ensure its effective implementation to create a level playing field for all, and ensure proper accountability mechanisms. Women can be a powerful force for change as has been shown countless times. They just need business to get on board.

Rachel Noble is the Women’s Rights Policy Adviser & Research Officer, ActionAid UK

John Morrison is Executive Director of the Institute for Human Rights and Business

 

A Trade Union leader’s personal perspective

Jim Baker’s thoughts on “The Social License” by John Morrison (Palgrave MacMillan, 2014)

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(Jim Baker was Co-ordinator of the Council of Global Unions (CGU) until 1 July 2014. The CGU was formed in January of 2007 and is composed of Global Union Federations, which group trade unions by sector and occupation as well as the International Trade Union Confederation (ITUC) and the Trade Union Advisory Committee to the OECD (TUAC), which bring together national trade union centres. Prior to that, Baker was the Director of the Bureau for Workers’ Activities (ACTRAV) at the International Labour Organisation (ILO). Before joining the ILO, he held the post of Director of the Department of Multinational Enterprises at the International Confederation of Free Trade Unions (ICFTU) in Brussels. These comments represent his personal thoughts)

The book accomplished what I understood to be its mission. It provoked thought and helped to further the discussion. What follows are some fairly unorganised thoughts that it provoked, by no means exhaustive: some of which might be useful.

Traditional CSR, public relations, and due diligence

The book showed restraint in its reflections on CSR, but I think that the essential points were made about its weaknesses and about the nature and self-propelling characteristics of the CSR industry. I had two complementary thoughts.

First, some of the comments reminded me of how CSR language has tripped us up. As George Orwell wrote,“…if thought corrupts language, language can also corrupt thought”. I suspect that we have all been afflicted by this language effect. We have become artificially conditioned to react in a way devoid of common sense. It is as if we have become one of Pavlov’s dogs that confuse noise with real food.

That brings me to a larger point that came to mind in several sections of the book; the degree to which we have all been affected by public relations and “hype”. Growing up in the Northwest, dependent on the lumber and wood products industry at the time, I recall that major companies were being attacked for logging without restoring the forests (inadequate planting of new trees to replace the barren ground that they had created). One of the major companies responded, not by planting more trees, but by calling themselves, “the tree growing people”. Part of the struggle for us all will be to separate the real from the imaginary.

The most serious danger of misinformation and disinformation is, undoubtedly, for democracy. The level of political debate is lower than at any other time in my memory. The people may still make decisions, but based on what information? And, where is that information coming from? In the US, with the end of key restrictions on political and issues funding, the “marketplace of ideas” is becoming more distorted as it is being increasingly “bought”.

But, to get back to smaller problems, the business and human rights framework is the best way out of the incestuous CSR world. However, the element that is probably, in practical terms, the most important is due diligence. It gets beyond companies saying and “proving” how good they are and others saying how bad they are to something that, rather than a good and evil measure, can be judged on how robust a process is; in that sense, it compares to democracy. After all, democracy is, above all else, the question of the value and validity and legitimacy of a process.

One of the useful and salvageable words in CSR is “responsibility”. I think that, to some extent, the use of the word “obligations” in the business and human rights discussions has worked. It is the same sense that rehabilitation of the word “responsibility” might be useful.

Legitimacy

A key argument of the book is legitimacy. It is related to the social license along with other concepts and it covers business, government and civil society organisations. I understand the importance of the argument and that without it, it does not hold together as well as it would otherwise. However, my idea of legitimacy is more restricted; probably reflecting the fact that I have spent my life dealing with it in a trade union context. And, defining legitimacy was central to the fight against totalitarianism, but also against company unions and other outside influences and control.

Legitimate trade unions are what were called “free trade unions”. Although the term has gone out of style, the concept remains important. Trade unions should be controlled by their members, not by the boss or by government or by a party, or by a church or by various stripes of mobsters. There have been two issues; the lack of outside control and democratic procedures to ensure that there is internal control by members. As in other democracies, the real democratic life in trade unions does not depend exclusively on having democratic constitutions and rules and dedicated democrats as leaders.

I think that it is important (in reference to a passage in the book) to maintain the importance of the distinction between Amnesty International and Human Rights Watch. Both make a significant contribution to the human rights debate, but having democracies inside democracies are also quite important. That is, of course, also true of trade unions that are, if they are free trade unions, both democratic and representative as well as being part of both the private sector and civil society. Trade unions and other democratic organisations also serve as schools for democracy. Also, democratic organisations depend for their legitimacy on internal factors; the expression of views of members or citizens rather than “stakeholders” or others.

That, in no way, minimizes the impact of expertise, dedication and good work any more than it is a form of attack on the great men and women that you quoted in your book. Non-governmental individuals (NGIs) are important, but are different than representative organisations. And, “membership-based” organisations are neither automatically representative nor democratic.

Constraints on business

Although we all have high hopes for the impact that the United Nations Guiding Principles (UNGPs) on Business and Human Rights will have on the future of capitalism, it is important to be realistic. Although there are forces and pressures building for companies to be more sensitive to human rights, such considerations are not driving business, even those making the most sincere efforts. And, there are other powerful forces in the world economy that business cannot ignore.

One of the realities of the financialisation of the economy culminating in the financial crisis is that the actors in financial markets often had more power than the people who were running businesses in the productive economy. Businesses were making bad decisions, in purely business terms (even though they often had human rights impacts as well) because they had to place priority on paying high dividends over investing in the future of their enterprises. If not, they risked hostile takeovers, asset stripping, etc. As has become clear with the BEPS work of the OECD, businesses were also often making bad business decisions related to shifting profits and transfer pricing; again, unrelated to production or services.

I have had a number of discussions with trade union leaders who saw eye to eye with their managers that action that undermined the long-term viability of companies and that resulted in bad investment priorities (and often in layoffs even if units were profitable) was destructive, but that they were in a context where there was no choice. With the GPs, we tend to look at MNEs as if they are powerful forces that can extend their respect for human rights to others. That is, to some extent, true, but it does not mean that they always have complete control or absolute power.

Of course, the market context is different for different sectors and companies inside of sectors. It is important and necessary to try to improve the health and safety and the rights situation in Bangladesh. However, that does not change the fact that in labour-intensive industries like garments, there is enormous competitive pressure for low wages and poor conditions. In other words, to look at Bangladesh without looking at the way that the global market in clothing works is only a tiny piece of the picture. Although it might sound protectionist to some, we did not have these massive problems in the 1970’s when much of the clothing market was being supplied by companies producing in the UK, the US and other developed countries. Workers had fought for their rights for generations and had made huge progress before they lost jobs as employment shifted to workers without rights. In the US, famously on the docks (although it existed elsewhere), there were “shapeups” where workers gathered each morning and were picked by the bosses to work that day. We are now in a sort of global shape-up where the labour of a human being has, once again, become a commodity and the basis of competitive advantage in some markets.

However, there is one specific area where the UNGPs have enormous potential concerning institutional investors. In the trade union movement, we have always had to explain to pension trustees that they cannot use their positions to “do good” or even to carry out their missions as trade unionists. Their job, often restricted by law and regulation, is to get a good return on investments to benefit retirees. If they could help in some situations, it was through the “business case”, in other words, arguing that bad industrial relations or environmental practices could jeapardise the profits and futures of companies and, for that reason, should be avoided. Decisions of the Dutch and Norwegian National Contact Points on due diligence responsibilities of institutional investors even with minority investments are an important change. If such considerations could have equal weight with fiduciary considerations, and if laws could be modified in keeping with that idea, it could, indeed, have great impact.of

Public Private Partnerships

PPPs are in fashion, in part, because governments and international organisations are looking for new sources of revenue. However, I think that there are not enough discussions about their usefulness, about any effects on democratic governance or public priorities or even their efficiency. I have always supported using private money for public purposes, but in the form of government bonds. Investors get a safe, guaranteed return and governments get needed resources, but public control remains intact. That is not the same as turning over services to private parties.

“Stakeholders”

The book helpfully tries to limit the use of the word “stakeholder”, but I have come to the conclusion that we need a stakeholder like in the Dracula films that can put a stake through its heart. It has gotten so out of control that governments are often considered stakeholders in companies, citizens are considered stakeholders in their governments (that might be true in China, but citizens are “shareholders” in democratic governments). It is an over-used and abused, and misleading word.

Some other more specific points

Page 34. The book mentions that CSR directors are restrained on employee issues because that is the province of HR directors. This cuts both ways. CSR directors often see employees, even the companies own employees as “stakeholders”. HR directors, by contrast, most often see employees as internal. An HR director who is instructed to respect human rights is, in fact, at the nexus of one of the few places where democracy actually has an impact on the company. He or she is dealing with trade unions on a daily basis. A good HR director often has the mentality of working and negotiating with people. A bad one, like a lot of CSR directors, sees his/her job as “taking care” of people.

Page 59. I found the Wikileaks example very interesting and completely concur that there is an issue of adverse impacts. An extreme example from some years ago was publishing names of CIA agents; thus putting their lives in danger. However, your paragraphs prompted another thought. Wikileaks also shows how weak and fragile professional, ethical journalism has become. The same information, handled by skilled journalists would have been much more useful than the flood of information with no study or analysis. Would newspapers be capable of breaking the Watergate story today even if they had all the information? And, what will Google do down the road when there is no reliable content?

Pages 70-71. I think that the book is right not to be “absolutist” when it comes to trust. It is very difficult to really understand what it means. In terms of SRI, a very large proportion of money that was SRI invested went into banks – pre-financial crisis. Was that trust mis-placed? But, that probably reflected public sentiment. If you can’t trust the banks, who can you trust?

And, there is the issue of trust by whom. Some decades ago, the US Department of Labour did an extensive poll on attitudes towards trade unions. As expected, it showed fairly negative views by the general public. And, when union members were asked about trade unions, in general, there was little difference from the public reaction. But, when they were asked what they thought of their own trade unions, they were very positive. For me, the second figure is the most important. However, the reaction of union members to trade unions in general also shows that union members are influenced by what they hear in the media in spite of their personal experience. I cite this example as something that shows how complicated trust can be.

Page 84. I thought that the points about tacit consent and about manipulation were very important. If we are to protect democracy, we have to work at it, but these issues are rarely on the agenda. Some years back, a friend of mine from the UAW was complaining about the fact that the Republican right was able to reach some of our members. He said, “It is like convincing the chickens to vote for Colonel Sanders”.

Page 91. I thought that the quotation from Salil Tripathi about not being able to measure a human rights abuse was excellent. The foolishness of claiming respect for freedom of association in China based on interviews is along these lines. This is another reason why due diligence rather than claiming virtue makes sense.

Pages 99-101. The discussion of businesses working in cooperation with NGOs and supply chains prompts me to point out that it is also appropriate for global companies to speak with Global Union Federations about their employees. As opposed to trying to improve conditions and rights in suppliers, some companies, through this process of examination of the situation in their facilities and suppliers some companies are actually making many workers direct employees and, in that way, ensuring that their rights are respected.

Pages 101-102. Although I do not disagree with you on outrageous CEO pay, I tend, however, to look at it as part of a broader issue of inequality. Pay determination is always subjective. To me, paying a CEO millions in salary and other benefits for his work is not inherently more evil than enabling somebody to make millions without working by clipping coupons.

Pages 105-106. The section about understanding power was really good. It is, in fact, an argument that is largely missing in CSR. And, there is no place where the imbalance of power has a bigger effect on rights or their absence than at the workplace. In fact, the worst impact on rights in triangular employment relationships is that a relationship between a worker and an employer that, in labour law, is recognised as being inherently unequal is replaced by commercial law relationships where parties are assumed to be equal. Fear is also highly relevant to power. As bad as it may be to be powerful; it is worse to be powerless.