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Currently, the Guidelines are the only global corporate responsibility instrument that has been formally adopted by governments. Endorsing governments have obligations to promote adherence by multinational corporations, and the OECD has provided clear directions in this regard. Through National Contact Points, endorsing governments are required to publicize the Guidelines and handle complaints brought against companies who are alleged to be in violation. There continues to be considerable disparity among endorsing governments' commitment to implementing the Guidelines. Furthermore, the Guidelines have many weaknesses, and their voluntary and non judicial nature means they cannot be enforced by law. Many NGOs, including Friends of the Earth, are convinced that the most effective way to counter irresponsible multinational corporate behavior is to adopt legally binding rules at the national and international levels. In the absence of a legally binding corporate accountability framework, however, the Guidelines' complaint procedure offers a unique governmental forum that may be useful for remedying problems. Thus far, only a few complaints have been resolved, and there simply has not been enough experience to know if the Guidelines will be a useful instrument to foster more responsible multinational enterprise behavior globally. Friends
of the Earth's A Guide to the Guidelines clarifies
opportunities and obstacles in the Guidelines, provides practical
guidance, summarizes a number of complaints that have been submitted
and describes hypothetical examples of activities that could be
considered violations. It is primarily intended to help individuals,
communities and NGOs to better understand the Guidelines in order
to promote meaningful and robust implementation by governments and,
most importantly, adherence by multinational enterprises. The following is the first chapter of Friends of the Earth's "A Guide to the Guidelines"
After World War II, the Organization for European Economic Cooperation (OEEC) was created to manage American and Canadian aid for Europe's reconstruction. In 1961, the OEEC became the Organization for Economic Cooperation and Development (OECD). Today, the OECD is a forum of 30 countries that develops and promotes economic and social policies. Its mission is to "build strong economies in its member countries, improve efficiency, hone market systems, expand free trade and contribute to development in industrialized as well as developing countries." Simply put, the OECD acts on behalf of and in collaboration with its member governments to advocate free market policies and trade. The OECD member
countries are Australia, Austria, Belgium, Canada, Czech Republic,
Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland,
Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand,
Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland,
Turkey, the United Kingdom, and the United States. What are the Guidelines for Multinational Enterprises? The Guidelines for Multinational Enterprises are one part of the OECD's Declaration on International Investment and Multinational Enterprises, which is a broad political commitment adopted in 1976 to promote investment among OECD countries. The Guidelines describe voluntary standards for responsible corporate conduct on a range of social and environmental issues, such as human rights, information disclosure, labor and the environment. Since their adoption in 1976, the Guidelines have been revised five times. The latest revision in 2000 resulted in a number of important changes. The Guidelines now apply to the global operations of multinational corporations based in OECD countries, including their subsidiary companies. Companies are also expected to encourage the network of companies that form its supply chain to follow the Guidelines. Endorsing governments must also set up National Contact Points (NCPs) to oversee their implementation. As of January 2004, governments that have endorsed the Guidelines include all 30-member states of the OECD plus Argentina, Brazil, Chile, Estonia, Israel, Lithuania and Slovenia. The Guidelines
are voluntary, which means multinational enterprises are not required
by law to comply with them. However, endorsing governments do expect
multinational companies to follow the recommendations outlined in
the Guidelines in their business operations worldwide. What are National Contact Points? Governments that have endorsed the Guidelines are obligated to ensure that they are implemented by creating "National Contact Point" (NCPs) within the government. NCPs are required to publicize the Guidelines and handle complaints brought against companies who are alleged to be in violation. NCPs do not monitor whether or not companies are following the Guidelines. While each endorsing government has flexibility in how it sets up its NCP and promotes the Guidelines, all NCPs are required to be visible, accessible, transparent and accountable when fulfilling the following four responsibilities:
NCPs
are typically located
in the ministries for economic or trade affairs. Some include more
than one ministry and others involve regional governmental bodies.
Some NCPs have representatives from other groups that might include
people from the business community, trade unions and/or non-governmental
organizations (NGOs). What is the Committee on International Investment and Multinational Enterprises? The Committee on International Investment and Multinational Enterprises (CIME) is the oversight body for the Guidelines within the OECD. It assists NCPs in carrying out their activities and makes recommendations on how they can improve their performance. When a complaint
against a company is submitted, only the NCP can decide if the company
has violated the Guidelines - the CIME cannot. Any NCP can ask the
CIME to judge whether another NCP has interpreted the Guidelines
correctly. The CIME can then make clarifications to the Guidelines,
if necessary. The Trade Union Advisory Committee (TUAC) and the
Business and Industry Advisory Committee (BIAC) can also request
clarifications. While the CIME's clarifications do not become part
of the official text of the Guidelines, they give information on
how certain guidelines should be seen and understood. Individuals,
communities, NGOs and multinational enterprises cannot directly
ask the CIME to provide clarifications at this time. Do the Guidelines apply to all multinational companies? The Guidelines apply to all parts of a multinational enterprise - from the company's headquarters to its subsidiaries - that are either based or operating in an endorsing country. They also apply to any part of a multinational company operating in non OECD countries, which means the Guidelines apply worldwide. For example, complaints have been submitted against companies operating in Zambia, Russia, Burma (Myanmar) and other non-OECD countries because the multinational enterprise is headquartered in an endorsing country. The applicability of the Guidelines to a certain part of a multinational enterprise is not conditioned on majority ownership. For example, the Guidelines apply to a multinational company that is a minority shareholder in a consortium or joint venture. The only situation in which the Guidelines would not apply is if the company is neither headquartered nor has operations in any endorsing country. The Guidelines do not provide a precise definition for the term "multinational enterprise." It generally means a company with operations in more than one country. A multinational enterprise can also consist of a variety of organizational arrangements, including privately-owned, state-owned or mixed ownership. Endorsing governments
have acknowledged that small and medium-sized companies might not
have the same capacity as multinational enterprises to adhere to
the Guidelines, but governments encourage them to follow the Guidelines
as well. What are the strengths and weaknesses of the Guidelines? The Guidelines have a number of strengths that makes them an interesting tool to advance more responsible multinational enterprise behavior globally. They cover a wide range of important social and environmental issues and apply to multinational enterprises' activities worldwide. Currently, the Guidelines are the only global corporate responsibility instrument that has been formally adopted by governments. The unique, governmental forum to address violations of the Guidelines offers another option that may be useful for remedying problems. For example, the purpose of a complaint could be to resolve a specific problem at a particular location, foster dialogue with management or make changes in the way a multinational enterprise operates. Filing a complaint might also test the functioning of a particular NCP or the government's commitment to the Guidelines. The Guidelines' complaint procedure is not as burdensome as filing a lawsuit, and it can be an option for individuals, communities and NGOs that do not have access to the domestic legal system. The Guidelines also have a number of major weaknesses that cause many NGOs to question their value. The most obvious weakness is the Guidelines' voluntary nature, which means they cannot be enforced by law. Endorsing governments do not monitor whether or not multinational enterprises are following the Guidelines. Also, it is not always clear what is expected of multinational enterprises under many of the guidelines and the use of phrases such as "where practicable" or "when appropriate" significantly lessens what is expected of companies. Once a complaint is received by an NCP, there are no set schedules it must follow for handling the matter. In one instance, an NCP waited an entire year before acting on a complaint, and some NCPs have ignored complaints entirely. There are no
formal sanctions if a company is found to have violated the Guidelines,
except the potential for negative publicity. NCPs can choose to
withhold some or all information about the complaint from the public,
including the name of the company, without explaining why or what
information is being withheld. In addition, the NCP does not monitor
whether a company fulfills its commitments after a complaint is
resolved. Lastly, if the complaint is decided in favor of the company,
individuals, communities and NGOs cannot appeal the decision, nor
can they directly ask the CIME to clarify whether or not the NCP
interpreted the Guidelines correctly. Do the Guidelines apply to a multinational company's suppliers? When the Guidelines were updated in 2000, one of the major changes was extending their applicability to multinational companies' "supply chains." A supply chain is the network of suppliers, contractors and sub contractors that participate in the production, delivery and sale of a particular product. Multinational enterprises are now expected to encourage all the companies that form its supply chain to follow the Guidelines. However, the business community and some endorsing governments are opposed to having the Guidelines apply to companies' supply chains. Their opposition has led to a debate as to whether the Guidelines do indeed apply to the supply chain and if so, to what extent. The debate has two aspects that are summarized below. The first relates to whether the Guidelines apply only to "investment" or also "trade" activities. Opponents to having the Guidelines apply to companies' supply chains argue that the relationship between a multinational enterprise and its suppliers is a trade relationship - not an investment relationship. For example, they argue an "investment" relationship means the multinational enterprise has some form of ownership in the companies that make up its supply chain. Opponents argue that the Guidelines were originally created to promote investment among OECD countries and do not apply to trade activities and therefore, do not apply to the supply chain. Supporters of the supply chain interpretation, which includes Friends of the Earth, argue that the Guidelines are intended to have the widest possible coverage and that they apply to both investment and trade activities. Supporters point to several sections in the Guidelines' official text, Clarifications and Commentary that support this position. The second aspect of the debate relates to what extent multinational enterprises should be expected to make sure its suppliers are following the Guidelines. Opponents argue that the ability of multinational enterprises to influence the companies that form its supply chain is limited. Companies cannot be expected to do the job of governments by acting as enforcers of legal requirements. Opponents also claim that supply chains can be extremely complex, making it impractical for multinational enterprises to ensure that all of its suppliers are following the Guidelines. Supporters counter that complexity is not a legitimate excuse, and point to examples of companies overcoming the difficulties of managing complex supply chains. For example, they argue "companies readily accept responsibility for product quality in the supply chain and engineer their management practices to ensure product quality." Supporters also argue that many companies have restructured their supply chains to take advantage of low wages in the garment and textile industries, but then take no responsibility for labor rights violations. Supporters assert that companies choose where they invest and who they hire to produce their goods, and that multinational enterprises could easily use different suppliers that do not violate the Guidelines. They also contend that lack of government enforcement does not excuse them from their responsibilities to encourage suppliers to follow the Guidelines. When faced with a complaint involving the supply chain, NCPs will look for an identifiable "investment nexus." According to a June 2003 statement issued by the CIME, an investment nexus exists when the multinational enterprise has some degree of influence in the host country or has an investment-like relationship with its suppliers. The NCP will seek to identify the existence of an investment nexus if a complaint involves a multinational enterprise's supplier(s). The investment nexus test is a troubling development, because it significantly weakens the Guidelines and reduces their scope. However, there has not been enough experience to know the full implications of how the investment nexus test will affect future supply chain-related complaints. The supply chain debate is still ongoing and there are good reasons to challenge this significant step backwards and weakening of the Guidelines. As of October 2003, the CIME has recommended a case by case approach for supply chain cases. Download A Guide to the Guidelines |
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