As part of the mandate of John Ruggie, the Special Representative of the Secretary General (SRSG) on the issue of human rights and transnational corporations and other business enterprises, an expert, multi-stakeholder consultation on that project was convened by Osgoode Hall Law School in Toronto in November 2009. The Summary Report, Expert Meeting on Corporate Law and Human Rights: Opportunities and Challenges of Using Corporate Law to Encourage Corporations to Respect Human Rights, Toronto, 5-6 Nov. 2009, is available online at the SRSG’s website at http://www.business-humanrights.org/Links/Repository/435476/jump. The consultation was also supported by the Office of the UN High Commissioner for Human Rights and further assistance was provided by Export Development Canada and PricewaterhouseCoopers." Summary Report at 1. The summary report is meant to serve as “the SRSG’s record of the consultation bearing in mind the Chatham House Rule of nonattribution under which each consultation session was held.” Summary Report at 1.
The Summary Report is both important and well worth reading. The fundamental objective of the proceedings was to facilitate an exploration of the possibilities of bending the traditionally insular and fairly narrow field of corporate law, as understood in the West. A hoped for consequence of that exploration was to sketch possible parameters and methods for helping to change behavior, that is to bend traditional forms of positive law to a particular purpose without altering the fundamental character of that field of law. But in the process, of course, both the nature of the field, and its interactions with other forms of law, governance and regulation (and these are, of course, quite distinct methods of organizing rules of behavior control) would necessarily change, and probably for the better.
The Summary Report is both important and well worth reading. The fundamental objective of the proceedings was to facilitate an exploration of the possibilities of bending the traditionally insular and fairly narrow field of corporate law, as understood in the West. A hoped for consequence of that exploration was to sketch possible parameters and methods for helping to change behavior, that is to bend traditional forms of positive law to a particular purpose without altering the fundamental character of that field of law. But in the process, of course, both the nature of the field, and its interactions with other forms of law, governance and regulation (and these are, of course, quite distinct methods of organizing rules of behavior control) would necessarily change, and probably for the better.
This orientation was well reflected in the organization of the “Corporate Law Tools Project” itself at the heart of the consultation. Summary Report, at 2. The project was meant to focus on the important first pillar of the SRSG’s important three pillar governance framework around which the governance of business and framework is organized. That framework posits (1) state responsibility to protect human rights, (2) company responsibility to respect human rights, and (3) access to effective remedies for human rights abuses. The focus of the Toronto Consultation was on the first Pillar. The conceptual framework underlying that Pillar was nicely illustrated recently by Vanessa Zimmerman:
A transnational corporation headquartered in Country A builds a plant in Country B and is alleged to employ forced labour in doing so. It is important to know not only what the corporation may have done wrong, but what both countries should have done to prevent the abuse and what they should do to address it. Recognising this, John Ruggie, the UN’s special representative on business and human rights, is mandated to consider the role of states with respect to business and human rights in addition to the responsibilities of corporations. Ruggie’s research on the roles of states has to date resulted in three main conclusions. First, while the exact content of state duties to protect against corporate abuse remains undefined, there is consensus that states are the primary duty bearers for human rights under international law – states have a duty to protect against abuses by third parties, including corporations, within their jurisdiction. Vanessa Zimmerman, Human Rights: Powers Without States, Discussion Paper, Jan. 7, 2008.
Of course, the traditional instruments of domestic regulation of economic enterprises lend themselves powerfully to the objectives of the First Pillar. “Key tools for doing so include corporate and securities law and policy. Corporate law directly shapes what companies do and how they do it. Yet its implications for human rights remain poorly understood. The two are often viewed as distinct legal and policy spheres, populated by different communities of practice.” Summary Report at 2. The object, then, is to engage in deliberations for the purpose of deploying traditional regulatory mechanisms to change corporate culture by changing the legal parameters of corporate behavior.
The CLT Project forms just one part of the SRSG’s work under the state duty to protect. It intentionally focuses on corporate and securities law in order to explore the challenges and opportunities for states in creating and implementing policy and legal reform in that area. The SRSG felt that a designated project was important given the relatively unexplored nature of the corporate and securities law arena vis-à-vis business and human rights. Summary Report at 2.
The Consultation, then, was meant to harvest ideas and approaches from leading professionals to this end, “with a view to providing the SRSG with broad recommendations on what legal and policy tools might be further explored.” Summary Report at 2.
Reflecting the fundamental instrumentalist focus of the proceedings, the meeting was broken up into eight sessions:
Reflecting the fundamental instrumentalist focus of the proceedings, the meeting was broken up into eight sessions:
1. Understanding the UN Framework and how the Corporate Law Tools Project Fits in (Summary Report at 3);
2. Incorporation and Listing (Summary Report at 4);
3. Directors’ Duties (Summary Report at 6);
4. Reporting (Summary Report at 8)
5. Stakeholder Engagement (Summary Report at 11);
6. Board Composition (Summary Report at 13);
7. Policy Coherence and other corporate governance tools (Summary Report at 15);
8. “Brainstorming” and recommendations (Summary Report at 17).
Thus packaged, the recommendations coming from the sessions would serve “develop guiding principles in this area that make sense to all governments, while not being so abstract as to be meaningless. And as he commented at the outset, while corporate law would remain a priority, he would also continue to look at how to drive human rights considerations into various other areas of policy and law that affect business operations.” Summary Report at 18. My purpose here is to reflect on some of what might be the more important insights that emerged from that meeting and which are reflected in the Summary Report. For that purpose, I will track the order in the sessions as set out in the Summary Report.
1. Understanding the UN Framework and how the Corporate Law Tools Project Fits in (Summary Report at 3).
This introductory session was meant, to some large extent, to set the conceptual framework for the session that followed. It is useful for understanding the boundaries of the SRSG project. This is an important consideration. While the SRSG’s project is both vital and important, it is meant to be quite focused on one of the great issues of corporate governance, not all of them. It is this limitation that serves as the foundation of the problem of “coherence” explained by the SRSG in the opening session.
1. Understanding the UN Framework and how the Corporate Law Tools Project Fits in (Summary Report at 3).
This introductory session was meant, to some large extent, to set the conceptual framework for the session that followed. It is useful for understanding the boundaries of the SRSG project. This is an important consideration. While the SRSG’s project is both vital and important, it is meant to be quite focused on one of the great issues of corporate governance, not all of them. It is this limitation that serves as the foundation of the problem of “coherence” explained by the SRSG in the opening session.
The SRSG’s work suggests that although some states are moving in the right direction, overall their practices exhibit substantial legal and policy incoherence. The most widespread is what he has called “horizontal” incoherence, where economic or business-focused departments and agencies that directly shape business practices—including corporate law, and securities regulation—conduct their work in isolation from and largely uninformed by their government’s human rights agencies and obligations, and vice versa. Summary Report, at 3.
Horizontal incoherence is an endemic problem in the regulatory role of the modern state. As its role as regulator has increased since the 19th century, and as the state has displaced other potentially competing communal regulators, from religion to ethnic systems for disciplining behavior, the apparatus of the state has grown increasingly complex. As a consequence, the state apparatus has become more divided along functional lines and the maintenance of system coherence has become more difficult. System coherence becomes even more difficult when the functional divisions of authority within a bureaucracy lose their normative value or no longer serve to further functional utility. That difficulty appears to mark the modern state apparatus as it moves from an internal ordering marked by a strict division between economic and individual rights functions, or between domestic and international law. For the project of corporations and human rights, the coherence issue is critical, and as important in its vertical dimension as in its more internally focused horizontal dimension. For the former, see, Backer, Larry Catá, Multinational Corporations, Transnational Law: The United Nation's Norms on the Responsibilities of Transnational Corporations as Harbinger of Corporate Responsibility in International Law. Columbia Human Rights Law Review, Vol. 37, 2005 ; and Kinley, David, Nolan, Justine and Zerial, Natalie, The Politics of Corporate Social Responsibility: Reflections on the United Nations Human Rights Norms for Corporations. Company and Securities Law Journal, Vol. 25, No. 1, pp. 30-42, 2007; Sydney Law School Research Paper No. 07/10. The management of both horizontal and vertical incoherence, then, serves as a key point in the construction of a useful governance framework for business and human rights—especially in the context of the First Pillar’s focus on the state’s duty to protect human rights. “Accordingly, the SRSG argued that governments cannot adequately discharge their human rights duties if they segregate business and human rights into a narrow conceptual and institutional box and ignore the issue in other business-related policy domains. Their duty to protect requires a more comprehensive understanding and coherent application.” Summary Report at 3. It is to that search for coherence that the remainder of the sessions were devoted.
2. Incorporation and Listing (Summary Report at 4).
Discussion of the utility of bending the incorporation and listing rules to the protection of human rights necessarily invoked consideration of the fundamental character of the corporation, and the relationship of that entity (so characterized) top the state (and its regulatory apparatus). And, of course, that is the difficulty. There is no single vision, either within a state, or between states, of the character of the entity. See, e.g., Ktsuhito Iwai, “Persons, Things and Corporations: the Corporate Personality Controversy and Comparative Corporate Governance,” American Journal of Comparative Law, 47 (4), Fall 1999, pp. 583-632. [PDF file: RIJE Discussion Paper, 97-F-37 version.]. Depending on whether corporations are understood as a nexus of contract, or as a nexus of privilege—that is, as property or institution—different regulatory approaches are possible. Moreover, traditionally, and certainly from the time of Milton Friedman in the 1960s, there has been a strong political policy aversion to moving too strongly toward an institutionalist model of corporate governance. Essentially, that fear is grounded on the anti-democratic consequences of vesting private enterprises with public purposes. Issues of democratic accountability, of the need to and value of preserving a strict distinction between public and private activity all play a role in the continuing strength of this reluctance.
All of these issues were well represented in the reported discussion on the use of incorporation and listing as instruments of a human rights set of objectives. One of the more radical proposals entailed undoing, arguably to a small but till significant extent, the fundamental basis of corporate organization: incorporation as a ministerial and enabling process rather than as a regulatory instrument. Summary Report at 4. It was acknowledge that this approach poses substantial conceptual difficulties beyond the significant problem of political feasibility. Id. One problem that was not mentioned but would also be worth considering is grounded in issues of class and economic opportunity. Simply put—enabling statutes with de minimus requirements permits people with substantially small means to have access to a powerful instrument of economic activity, leverage their assets and better their economic circumstances. The greater the regulatory burden, the larger the regulatory hurdles to access to this form of organization, the less likely that it will be available as a method for economic betterment in developed states and as a powerful instrument of development in poorer states. Limiting the corporate form to the well off might itself violate the letter or spirit of the very human rights instruments that this solution would be designed to protect.
The South African approach, to liberally permit incorporation, but subjecting all corporations to the human rights norms of the South African constitution has possibilities, but it also implicates the horizontal coherence problem highlighted by the SRSG. Moreover, it also suggests the critical importance of the vertical incoherence problem of focusing on national clusters of human rights in the context of developing global human rights norms. Still, there may be value in focusing on fundamental principles, universally applicable within a domestic legal order, that fosters all organizations to become human rights respecting as an integral condition of their operation. Yet moving beyond implicit incentives and generally applicable obligations implicated the great conceptual difficulty of democratic governance. “The speaker was also concerned that adding human-rights duties as a pre-condition to incorporation could blur already confused state and business responsibilities – effectively setting up private bodies with public duties. Rather, human rights-related responsibilities sit better within other laws such as labor and criminal laws.” Summary Report at 5. This was a position countered by those who, equating corporate articles of incorporation with domestic political constitutions, suggested transposing political obligations with respect to human rights into corporate “constitutions” as a condition to incorporation.
Different perceptions of corporate personality produce different regulatory possibilities. And there lies the great difficulty of the discussion. Assuming a sort of polycontextuality in corporate personality, that is of the corporation simultaneously understood as property, institution, a gossamer of contracts or privilege, it would follow that any regulatory approach would necessarily invite opposition on two levels. The first, the object of the discussion reported, is substantive. The other, less well recognized but perhaps more important, focuses on the institutionalization of power. Corporate law, in effect, now reflects a balancing of power among the various notions of corporate personality. Any significant regulatory movement would tend to change that balance, and the interests of those benefiting from the current arrangement. Shareholders, for example, are less likely to favor institutionalism in regulation because it has the effect of reducing the power (and legal effects) of corporations as property. The opposite is true as well. An interest analysis, grounded in the relationship between corporate personality and the distribution of power among corporate stakeholders within a particular regulatory framework is essential in any discussion seeking to change the mix.
Missing from the discussion was the application of the discussion to either state owned enterprises or to sovereign investing entities, for example sovereign wealth funds. These entities ought to more naturally be amenable to treatment under a public law model, especially at the shareholder level. It is not clear that the enabling principle, so important in the context of private corporations, is particularly relevant in the context of these publicly held entities. As such, these would be enterprises where the state obligation to protect might well have direct application. The only objection would be one of parity--that state owned entities engaging in private market activities should be treated like other similar enterprises. But the argument is substantially weakened by the reality of public ownership. If the state has a direct duty to protect, that duty applies to all of its instrumentalities and activities, whether direct or indirect. To claim a power to shield its activities from the obligation of a state to protect human rights by resort to the expedient of shielding public or state operations in private form would subvert the state duty to protect in a fundamental sense.
3. Directors’ Duties (Summary Report at 6).
This last notion, to some extent, also underlies the important discussion of the utility of focusing on the regulation of directors’ duties as a means of naturalizing human rights within corporate governance, the subject of the second session. The issue of directors’ duties implicates not only human rights, but also the fundamental purpose of the corporation itself. This later issue is bound up in the seemingly simple question: who does the corporation serve—shareholders, the entity itself, others, or a combination of all of these? The answer to this question has been simple and straightforward--the corporation serves the shareholders directly or indirectly by serving the financial interests of the entity itself. It might consider a range of factors that may bear on the welfare of shareholders and entity, but they may not privilege the welfare of any actor to the detriment of the entity or its shareholders. It is in that context that the most ambitious thrust of the session--to determine whether it is possible to extend to directors a duty to take into account the human rights impacts of their company's operations (or absent that to permit directors to take such impacts into account)--assumes its most radical aspects. Summary Report at 6.
The radicalism of such a proposition--at least within the conventional context of corporate law--was emphasized by the inability of participants generally to directly confront the question in its most aggressive posture. One noted that even current movements that appear to permit such consideration (in the case of the U.K.'s Section 172(d) with respect to impacts on communities and environment) was still firmly centered on the principal obligation of directors to act in the company's best interest. It's thrust is to promote the interests of shareholders--now more broadly conceived to include issues besides the direct maximization of short term cash positions--within parameters approved by the state. "It guides directors in what they should consider in the boardroom (and in doing so explicitly enables directors to consider community and environmental impacts) but does not prescribe how they should do so and does not hold them to account for any impacts that might result if they decide not to act on them. It was contended that section 172 thus codified what was already implied in the common law, and did not amount to a significant change in the status quo." Summary Report at 6.
Yet even in this exceedingly mild form, the narrowly permissive and ambiguous permission to directors elicited a lively conversation that suggested the strength of the conventional framework privileging shareholder interests in the deliberative processes required of directors. Some participants hailed Section 172 "as a positive development given its normative value. One participant highlighted the organic nature of fiduciary duties and the fact that section 172 showed how duties were evolving in the 21st century. It was argued too that the provision, while not perfect, provides directors and shareholders with a negotiating framework for more responsible corporate behavior." Id. at 7. Yet that sentiment was hedged with the quite sensible suggestion that directors be held harmless for actions undertaken under this modest provision--hardly a sign of confidence in the utility of the provision for broadening the normative base of director duty to consider factors other than shareholder or company welfare. "In particular, some participants remained skeptical of the ability of shareholder-centric provisions to bring about any real change in directors’ accountability for human rights-related abuses, because only shareholders may take action for breach." Id. But the problems were not merely substantive. Procedural hurdles of using director's duties as a basis for considering the human rights impacts of corporate activity. Thus, for example, "the participants spoke about the obstacles that might face shareholders in bringing derivative actions against directors for breach of section 172 type provisions." Summary Report at 8. The best that was suggested was South Africa's model that broadened the right of individuals to bring derivative suits (id., at 8), yet the trend in many other states, the United States in particular, is to reduce the scope of private rights of action--transferring that power to the enforcement arms of the state. See, e.g., Backer, Larry Catá, Surveillance and Control: Privatizing and Nationalizing Corporate Monitoring after Sarbanes-Oxley. Law Review of Michigan State University (2004).
Still, despite the power of the conventional model of director duty, the SRSG's questions are worth considering. It appears unlikely that the shareholder (or even the slightly more broad conventional stakeholder) model of director duty will be abandoned. And the American experience suggests that a permissive broadening of the scope of duties will have little real effect to change either behavior or the culture which legitimate behavior choices. But a change in the way in which shareholder or entity welfare maximization is measured would prompt significant change in director behavior. This approach was hinted at in the proceedings and merits further considerable investigation. Director's duties are derivative of shareholder rights. To change the method of taking the measure of those rights would provide the mandatory flexibility for director conduct that the SRSG seeks through First Pillar action.
4. Reporting (Summary Report at 8).
Monitoring and transparency have come to the forefront of both corporate governance reform efforts at the state level and as a regulatory method in its own right. Backer, Larry Catá, Global Panopticism: States, Corporations and the Governance Effects of Monitoring Regimes. Indiana Journal of Global Legal Studies, Vol. 15, 2007. "Reporting can be essential for the company in knowing itself whether its policies are being effectively implemented. It can also facilitate stakeholders (shareholders and non-shareholders alike) to better engage with individual companies, assess risk and compare performance within and across industries." Summary Report at 8. The participants identified a number of useful reporting templates, from the Global Report Initiative to models from Sweden and Denmark. See Summary Report at 10.
Again, the discussion suggested the power of the public/private divide in legal culture and its effect on limiting conceptualization of issues and solutions. The problem was posed not as one of capacity but of politics, that is of the concern that changes to corporate governance of this kind would not be deemed legitimate because they would effectively concede the political character of the corporation. Public entities are accountable to the electorate. Corporations are accountable directly to their shareholders, indirectly to their stakeholders and remotely to the public regulator that sets the terms of their operations within the territory of a state. Conceding public obligations to corporations without electoral accountability would appear to cede public functions to private entities without public accountability. Thus, "similar to the incorporation discussion, the issues of “institutional competence” was raised – by imposing reporting obligations on companies with respect to human rights are we placing too much responsibility for the public good in institutions designed for private profit maximization?" Summary Report at 8. Yet, that is precisely what governments, and in particular that of the United States, has sought to do especially after the adoption of the Sarbanes Oxley Act of 2002. Backer, Larry Catá, The Duty to Monitor: Emerging Obligations of Outside Lawyers and Auditors to Detect and Report Corporate Wrongdoing Beyond the Securities Laws. St. John's Law Review, Vol. 77, No. 4, p. 919, 2003.
2. Incorporation and Listing (Summary Report at 4).
Discussion of the utility of bending the incorporation and listing rules to the protection of human rights necessarily invoked consideration of the fundamental character of the corporation, and the relationship of that entity (so characterized) top the state (and its regulatory apparatus). And, of course, that is the difficulty. There is no single vision, either within a state, or between states, of the character of the entity. See, e.g., Ktsuhito Iwai, “Persons, Things and Corporations: the Corporate Personality Controversy and Comparative Corporate Governance,” American Journal of Comparative Law, 47 (4), Fall 1999, pp. 583-632. [PDF file: RIJE Discussion Paper, 97-F-37 version.]. Depending on whether corporations are understood as a nexus of contract, or as a nexus of privilege—that is, as property or institution—different regulatory approaches are possible. Moreover, traditionally, and certainly from the time of Milton Friedman in the 1960s, there has been a strong political policy aversion to moving too strongly toward an institutionalist model of corporate governance. Essentially, that fear is grounded on the anti-democratic consequences of vesting private enterprises with public purposes. Issues of democratic accountability, of the need to and value of preserving a strict distinction between public and private activity all play a role in the continuing strength of this reluctance.
All of these issues were well represented in the reported discussion on the use of incorporation and listing as instruments of a human rights set of objectives. One of the more radical proposals entailed undoing, arguably to a small but till significant extent, the fundamental basis of corporate organization: incorporation as a ministerial and enabling process rather than as a regulatory instrument. Summary Report at 4. It was acknowledge that this approach poses substantial conceptual difficulties beyond the significant problem of political feasibility. Id. One problem that was not mentioned but would also be worth considering is grounded in issues of class and economic opportunity. Simply put—enabling statutes with de minimus requirements permits people with substantially small means to have access to a powerful instrument of economic activity, leverage their assets and better their economic circumstances. The greater the regulatory burden, the larger the regulatory hurdles to access to this form of organization, the less likely that it will be available as a method for economic betterment in developed states and as a powerful instrument of development in poorer states. Limiting the corporate form to the well off might itself violate the letter or spirit of the very human rights instruments that this solution would be designed to protect.
The South African approach, to liberally permit incorporation, but subjecting all corporations to the human rights norms of the South African constitution has possibilities, but it also implicates the horizontal coherence problem highlighted by the SRSG. Moreover, it also suggests the critical importance of the vertical incoherence problem of focusing on national clusters of human rights in the context of developing global human rights norms. Still, there may be value in focusing on fundamental principles, universally applicable within a domestic legal order, that fosters all organizations to become human rights respecting as an integral condition of their operation. Yet moving beyond implicit incentives and generally applicable obligations implicated the great conceptual difficulty of democratic governance. “The speaker was also concerned that adding human-rights duties as a pre-condition to incorporation could blur already confused state and business responsibilities – effectively setting up private bodies with public duties. Rather, human rights-related responsibilities sit better within other laws such as labor and criminal laws.” Summary Report at 5. This was a position countered by those who, equating corporate articles of incorporation with domestic political constitutions, suggested transposing political obligations with respect to human rights into corporate “constitutions” as a condition to incorporation.
Different perceptions of corporate personality produce different regulatory possibilities. And there lies the great difficulty of the discussion. Assuming a sort of polycontextuality in corporate personality, that is of the corporation simultaneously understood as property, institution, a gossamer of contracts or privilege, it would follow that any regulatory approach would necessarily invite opposition on two levels. The first, the object of the discussion reported, is substantive. The other, less well recognized but perhaps more important, focuses on the institutionalization of power. Corporate law, in effect, now reflects a balancing of power among the various notions of corporate personality. Any significant regulatory movement would tend to change that balance, and the interests of those benefiting from the current arrangement. Shareholders, for example, are less likely to favor institutionalism in regulation because it has the effect of reducing the power (and legal effects) of corporations as property. The opposite is true as well. An interest analysis, grounded in the relationship between corporate personality and the distribution of power among corporate stakeholders within a particular regulatory framework is essential in any discussion seeking to change the mix.
Missing from the discussion was the application of the discussion to either state owned enterprises or to sovereign investing entities, for example sovereign wealth funds. These entities ought to more naturally be amenable to treatment under a public law model, especially at the shareholder level. It is not clear that the enabling principle, so important in the context of private corporations, is particularly relevant in the context of these publicly held entities. As such, these would be enterprises where the state obligation to protect might well have direct application. The only objection would be one of parity--that state owned entities engaging in private market activities should be treated like other similar enterprises. But the argument is substantially weakened by the reality of public ownership. If the state has a direct duty to protect, that duty applies to all of its instrumentalities and activities, whether direct or indirect. To claim a power to shield its activities from the obligation of a state to protect human rights by resort to the expedient of shielding public or state operations in private form would subvert the state duty to protect in a fundamental sense.
3. Directors’ Duties (Summary Report at 6).
This last notion, to some extent, also underlies the important discussion of the utility of focusing on the regulation of directors’ duties as a means of naturalizing human rights within corporate governance, the subject of the second session. The issue of directors’ duties implicates not only human rights, but also the fundamental purpose of the corporation itself. This later issue is bound up in the seemingly simple question: who does the corporation serve—shareholders, the entity itself, others, or a combination of all of these? The answer to this question has been simple and straightforward--the corporation serves the shareholders directly or indirectly by serving the financial interests of the entity itself. It might consider a range of factors that may bear on the welfare of shareholders and entity, but they may not privilege the welfare of any actor to the detriment of the entity or its shareholders. It is in that context that the most ambitious thrust of the session--to determine whether it is possible to extend to directors a duty to take into account the human rights impacts of their company's operations (or absent that to permit directors to take such impacts into account)--assumes its most radical aspects. Summary Report at 6.
The radicalism of such a proposition--at least within the conventional context of corporate law--was emphasized by the inability of participants generally to directly confront the question in its most aggressive posture. One noted that even current movements that appear to permit such consideration (in the case of the U.K.'s Section 172(d) with respect to impacts on communities and environment) was still firmly centered on the principal obligation of directors to act in the company's best interest. It's thrust is to promote the interests of shareholders--now more broadly conceived to include issues besides the direct maximization of short term cash positions--within parameters approved by the state. "It guides directors in what they should consider in the boardroom (and in doing so explicitly enables directors to consider community and environmental impacts) but does not prescribe how they should do so and does not hold them to account for any impacts that might result if they decide not to act on them. It was contended that section 172 thus codified what was already implied in the common law, and did not amount to a significant change in the status quo." Summary Report at 6.
Yet even in this exceedingly mild form, the narrowly permissive and ambiguous permission to directors elicited a lively conversation that suggested the strength of the conventional framework privileging shareholder interests in the deliberative processes required of directors. Some participants hailed Section 172 "as a positive development given its normative value. One participant highlighted the organic nature of fiduciary duties and the fact that section 172 showed how duties were evolving in the 21st century. It was argued too that the provision, while not perfect, provides directors and shareholders with a negotiating framework for more responsible corporate behavior." Id. at 7. Yet that sentiment was hedged with the quite sensible suggestion that directors be held harmless for actions undertaken under this modest provision--hardly a sign of confidence in the utility of the provision for broadening the normative base of director duty to consider factors other than shareholder or company welfare. "In particular, some participants remained skeptical of the ability of shareholder-centric provisions to bring about any real change in directors’ accountability for human rights-related abuses, because only shareholders may take action for breach." Id. But the problems were not merely substantive. Procedural hurdles of using director's duties as a basis for considering the human rights impacts of corporate activity. Thus, for example, "the participants spoke about the obstacles that might face shareholders in bringing derivative actions against directors for breach of section 172 type provisions." Summary Report at 8. The best that was suggested was South Africa's model that broadened the right of individuals to bring derivative suits (id., at 8), yet the trend in many other states, the United States in particular, is to reduce the scope of private rights of action--transferring that power to the enforcement arms of the state. See, e.g., Backer, Larry Catá, Surveillance and Control: Privatizing and Nationalizing Corporate Monitoring after Sarbanes-Oxley. Law Review of Michigan State University (2004).
Still, despite the power of the conventional model of director duty, the SRSG's questions are worth considering. It appears unlikely that the shareholder (or even the slightly more broad conventional stakeholder) model of director duty will be abandoned. And the American experience suggests that a permissive broadening of the scope of duties will have little real effect to change either behavior or the culture which legitimate behavior choices. But a change in the way in which shareholder or entity welfare maximization is measured would prompt significant change in director behavior. This approach was hinted at in the proceedings and merits further considerable investigation. Director's duties are derivative of shareholder rights. To change the method of taking the measure of those rights would provide the mandatory flexibility for director conduct that the SRSG seeks through First Pillar action.
4. Reporting (Summary Report at 8).
Monitoring and transparency have come to the forefront of both corporate governance reform efforts at the state level and as a regulatory method in its own right. Backer, Larry Catá, Global Panopticism: States, Corporations and the Governance Effects of Monitoring Regimes. Indiana Journal of Global Legal Studies, Vol. 15, 2007. "Reporting can be essential for the company in knowing itself whether its policies are being effectively implemented. It can also facilitate stakeholders (shareholders and non-shareholders alike) to better engage with individual companies, assess risk and compare performance within and across industries." Summary Report at 8. The participants identified a number of useful reporting templates, from the Global Report Initiative to models from Sweden and Denmark. See Summary Report at 10.
Again, the discussion suggested the power of the public/private divide in legal culture and its effect on limiting conceptualization of issues and solutions. The problem was posed not as one of capacity but of politics, that is of the concern that changes to corporate governance of this kind would not be deemed legitimate because they would effectively concede the political character of the corporation. Public entities are accountable to the electorate. Corporations are accountable directly to their shareholders, indirectly to their stakeholders and remotely to the public regulator that sets the terms of their operations within the territory of a state. Conceding public obligations to corporations without electoral accountability would appear to cede public functions to private entities without public accountability. Thus, "similar to the incorporation discussion, the issues of “institutional competence” was raised – by imposing reporting obligations on companies with respect to human rights are we placing too much responsibility for the public good in institutions designed for private profit maximization?" Summary Report at 8. Yet, that is precisely what governments, and in particular that of the United States, has sought to do especially after the adoption of the Sarbanes Oxley Act of 2002. Backer, Larry Catá, The Duty to Monitor: Emerging Obligations of Outside Lawyers and Auditors to Detect and Report Corporate Wrongdoing Beyond the Securities Laws. St. John's Law Review, Vol. 77, No. 4, p. 919, 2003.
It was suggested that in the United States certain reporting provisions in the Sarbanes-Oxley Act were intended to encourage officers to disclose more in order to do more. However, it was also argued that proponents of mandatory disclosure do need to think about where such disclosure would best fit, including within financial reporting. It was highlighted that in Canada there are two materiality tests: (a) the market impact test; and (b) the reasonable investor test. The latter may be more easily used to bring in social, including human rights, considerations into materiality decisions. Summary Report at 9.
For monitoring, of course, the devil is in the detail, and much time was spent discussing the difficulties of implementing an effective system of transparency and monitoring. Important issues were considered, few lending themselves to easy answers. "The third speaker brought examples from Africa, specifically focusing on the recommendations of the King Commission of Corporate Governance in South Africa. The recent third report of the King Commission suggests integrated financial and sustainability reports, which should record how the company has positively and negatively impacted the communities in which it operates." Summary Report at 9. Others included--reporting parity among different sorts of entities, materiality concerns (a concept that has bedeviled regulators and courts in the United States), flexible standards for reporting depending on the reputation of host countries, disparities between reporting and remedy obligations, the value of imposing reporting requirements through soft or hard law instruments, the connection between reporting and liability, and enforcement issues. Summary Report at 9-10. With the issue of coherence, the participants illustrated the power of horizontal incoherence even within a regulatory field.
Continuing with the theme of enforcement, other participants contended that even shareholders may have difficulty in taking action, particularly where there is no obvious impact on the share price from the company’s reporting failures. However another stressed that enforcement should not only be measured in legal actions - lack of disclosure may dilute investor confidence in a company, which may eventually prompt management changes. It was accepted that this means investors themselves must do more to encourage greater transparency - regulators may only be able to take reporting rules so far. Summary Report at 10.
The discussion made clear the difficulty of stitching a human rights based monitoring and reporting requirement on a corporate system centered on the maximization of shareholder welfare. The aggregation suggests a merger of two models that in this respect, and in this form, remain incompatible. Perhaps coherence can be achieved by monitoring efforts targeted to shareholder value. But that requires a reporting regime that relies on markets rather than on regulatory constraints. See, e.g., Backer, Larry Catá, From Moral Obligation to International Law: Disclosure Systems, Markets and the Regulation of Multinational Corporations. Georgetown Journal of International Law, Vol. 39, 2008.
5. Stakeholder Engagement (Summary Report at 11).
The discussion of the monitoring issue, then, implicated the substance of the next issue discussed--that of shareholder engagement. This issue goes to the heart of conventional approaches to corporate governance, that of determining which corporate actors are privileged by law to corporate assets and control.
5. Stakeholder Engagement (Summary Report at 11).
The discussion of the monitoring issue, then, implicated the substance of the next issue discussed--that of shareholder engagement. This issue goes to the heart of conventional approaches to corporate governance, that of determining which corporate actors are privileged by law to corporate assets and control.
An example was provided of a shareholder resolution which requested a human rights impact assessment of a mining project. A committee was established to carry out the assessment, including company and shareholder representatives, but no representatives from the affected community. The speaker argued that affected individuals and communities are rights holders, not merely “stakeholders”, and that socially responsible investment firms are companies that have a responsibility to respect rights too. Summary Report at 12.
Earlier sessions highlighted how other aspects of corporate governance, such as directors’ duties and reporting rules, may help stakeholders, particularly shareholders, to understand more about a company’s human rights impacts and request that they address them. This session aimed to explore other tools such as shareholder proposals; speaking rights at annual general meetings; bilateral dialogue; stakeholder panels or committees; and divestment. Summary Report at 11.
The panelists usefully first suggested the role of institutional investors in helping shape corporate governance policy. The suggestion was made that such investor action might be effective in shifting corporate culture and activities with respect to human rights. The focus was on state pension funds--which are large and effective in the United States and other developed States. Summary Report at 11-12. Little mention was made of state sovereign wealth funds. One in particular, the Norwegian Sovereign Wealth Fund has become a global leader in incorporating considerations of human rights in both its investment decisions and in its role as a shareholder. See, Backer, Larry Catá, Sovereign Wealth Funds as Regulatory Chameleons: The Norwegian Sovereign Wealth Funds and Public Global Governance Through Private Global Investment (May 4, 2009). Georgetown Journal of International Law, Vol. 41, No. 2, 2009.
A very interesting turn in the discussion, especially in light of the sophistication of large investors and their counsel, was the "confusion amongst investors as to whether they were even allowed to consider social issues, including human rights, and thus government declarations could be helpful in assuring investors that such considerations need not conflict with their fiduciary duties." Summary Report at 12. Yet it has been a hallmark of American corporate law for almost a century that while directors and perhaps controlling shareholders have fiduciary duties that extend to some extent to their conduct as shareholders, non controlling shareholders are free to vote and act in their own interest--which could include an interest in fostering a greater sensitivity to human rights. There are limits, of course, but none that would suggest that shareholders breach a duty by insisting on the adoption of human rights sensitive behavior by corporate officers and directors. Indeed, as the SRSG suggested elsewhere, such activity could be justified on conventional values maximizing grounds. Indeed, the suggestion of the use of sustainability of indices, like the Dow Jones Sustainability Index (Summary Report at 12-13) also suggest the utility of such shareholder action in conventional settings.
6. Board Composition (Summary Report at 13).
One of the most topical areas of policy discussion in corporate governance circles over the last several decades has focused on the composition of boards of directors. As policy consensus has moved from notions of managerial privilege (and insider boards) to shareholder democracy (and boards composed of independent directors), this issue has found its way to the center of a host of corporate governance debates. The work of Stephen Bainbridge in the United States is instructive. See, Bainbridge, Stephen M., Director Primacy: The Means and Ends of Corporate Governance (February 2002). UCLA, School of Law Research Paper No. 02-06. At the same time, the courts in the United States continue to protect the prerogatives of directors against shareholder direct or derivative action. While shareholder democracy has advanced as a policy concept, its manifestation has not had much of an effect on changing the distribution of power between shareholders as a class and directors. For a recent case, see In Re The Dow Chemical Company Derivative Litigation, Cons. No. 4339, (Del. Ch., Jan. 11, 2010), read opinion here. For a discussion of the opinion, see Kevin Brady and Ryan Newell, Delaware Court of Chancery Dismisses Dow Shareholders' Derivative Claims Regarding Rohm and Haas Acquisition for Failure to Plead Demand Futility, Delaware Corporate and Commercial Litigation Blog ,January 17, 2010. Within the debate outside the United States, the issue of board composition has served as the site for advancing a stakeholder model of governance over a shareholder primacy model. Stakeholder governance has been given short shrift in the United States but remains popular among academics and government officials outside the U.S. Those notions were very much in evidence in the form of the debate. The combination of issues--outside versus inside director models and stakeholder versus shareholder representation models was nicely represented in the discussion.
The discussion on board representation was grounded in the conventional parameters of the debate within global corporate law circles--the value of including labor representatives on the board (in two tier board structure son the supervisory board) and the issue of independent directors (again in a two tier board structure at the supervisory board level). There was a sense that this form of organization can be effective, though there are transaction costs involved. For some, a two tier board structure "could assist corporate cultures respectful of rights by instituting further checks and balances for the acts of the managerial board. The supervisory board may also provide a safer space for key stakeholders, such as employees, to raise concerns." Summary Report at 14. But that is only marginally useful in fostering a structural system that meets the SRSG's object of managing corporate governance structures to produce an mandatory engagement with human rights at the director level. The same could be said of the utility of independent directors on boards. See id., at 14. The difficulty, of course is the inherent coherence of conventional corporate law--in a system nicely structured to further the interests of shareholders, a system in which shareholders are the objects and instruments of director discipline, structural changes to the board that change the decision structure of the board necessarily implicate the shareholder supremacy norm of corporate organization, at least as a matter of corporate law.
Interestingly, the Chinese perspective suggested that such an approach was more likely to be effective within the state corporate sector, and that "attention will need to be paid to whether it is being respected in substance by privatized companies." Summary Report at 13. Yet it is well known that formal inclusion can be a means of effective exclusion--an open secret in the context of German co-determination. Moreover, in state owned industries, the convergence of public obligation and private responsibility converge. The critical issue ion the SOE context is enforcement. States are well practiced int he art of suggesting conclusions and interpretations that advance their interests. Without effective systems of accountability, including transparency, such statements are untested and subject to abuse. But here one bumps up against the conventional norms of the state system itself--as the Chinese government officials made clear at the Copenhagen Climate Conference recently, it is one thing to induce states to commit to certain obligations, but it is quite another to implant systems of accountability that are not wholly under the control of the reporting state. For the Chinese issues of sovereignty mask sensitivities to a neocolonialist past and a desire to avoid international discipline. But those issues remain very real either when directly implicated in the case of SOEs or indirectly in the context of the First Pillar generally. If the state's obligation to protect does not include monitoring and transparency requirements vested in the community of states subject to the same strictures, then it will be difficult to monitor compliance. Balancing sovereignty concerns and the needs for accountability and enforcement in the First Pillar context may prove difficult--yet it presents an important and necessary exercise.
But there was also discussion of gender representation on boards--with reference to France's recent consideration of gender quotas for board representation. Summary Report at 13-14. "focusing on gender representation, several participants noted other examples of legislative developments in Norway, Sweden and Denmark. It was suggested that much could be done to increase international policy coherence in this area by encouraging governments to consider developments in other states when constructing their own policies and laws." Summary Report at 14. The constitutional difficulties of such approaches was noted as well. Summary Report at 14. Additional difficulties of any uniform approach to board composition was emphasized, especially in its application within developing states. Id. And indeed, in developing states, issues of essentializing board representation (women members to represent women's interests; ethnic representatives; representatives of religious constituencies and the like) presents both internal and external constituencies difficulties. This, it was suggested theater "Moving back to the topic of employee and gender representation, it was highlighted that in order for such representation to be effective, it should be accompanied by guidance for those representatives of whose interests they are there to serve and what steps they may take to promote them." Id., at 14. And, indeed, the difficulty is a matter of focus--if the object is to manage formal structures of corporate governance to ensure a mandatory sensitivity to issues of human rights in corporate activities, the exercise of formalist pluralism might miss the mark, though it serves other potentially useful objects.
But issues of board composition in the context of developing the habit of human rights sensitivity is not merely about board composition. There is a structural element that is worth discussing. For that purpose the SRSG focused on "the arguments for or against requiring or incentivizing boards to create “CSR” or “ethics” sub-committees designed to monitor social, environmental and governance issues, including human rights" Summary Report at 13. The general consensus appeared to be dismissive: "On the issue of board sub-committees on corporate social responsibility, it was argued that such issues need to be considered as part of the board’s ordinary business. The contention was that as soon as such issues move into a “sub”-committee, they lose prevalence and focus." Summary Report at 13. Yet form an American perspective, this is a notable conclusion. The thrust of U.S. law over the last decade or so has been to use the flexibility in Board organization and operation to demand delegation of critical functions to duly constituted sub committees of the board. These sub committees are given broad authority over specific areas--principally relating to nominations to the board, compensation, and financial issues. Rather than serving as burial grounds for issues that are marginalized, they serve as centers of board power. And, indeed, in the case of regulation like the Sarbanes Oxley Act, allow the regulator to specify the qualifications of members of such powerful sub committees without otherwise interfering with the power of the company to ground selection of other board members on the basis of other criteria (connections, wealth, etc.).
7. Policy Coherence and other corporate governance tools (Summary Report at 15).
Of course, the prior discussion implicated issues of coherence in a fairly comprehensive way. I have suggested that which it is true enough that there is a substantial amount of incoherence within domestic legal orders, especially as between human rights regulation and corporate regulation, there is a substantial coherence within corporate law. But coherence in this context tends to work against the SRSG's principal objectives with respect to the use of corporate law (as currently framed) to advance the First Pillar state obligation to protect human rights. The discussion of approaches to "coherence."
One approach to policy coherence rests on process issues, principally consultation. The U.K. approach suggested a focus on internal coherence, that is on harmonization within a domestic legal order by reference to its own internal logic. "The first speaker discussed the adoption of the UK Companies Act. It was highlighted that there was a significant level of public consultation for most aspects of the Act, which provided a variety of stakeholders with the opportunity to note their concerns and ideas, including different government departments." Summary Report at 15. In contrast the Danish approach suggested an externally based approach--grounding coherence on standards generated within a global context and then transposed into the Danish legal order. Id. The Danish approach suggested difficulties--principally international policy incoherence. Reliance on soft law developments at the transnational level, and contextual flexibility were suggested as necessary for the evolution of transnational standards. Summary Report at 15-16. Yet this suggests fracture as well as harmonization. If human rights are understood quite distinctly within particular national orders, the possibility of gaming the system to the advantage of flexible multinational corporations: such entities might move operations to places that maximize their income and minimize the obtrusiveness of otherwise applicable principles might be too hard to resist--and even harder to police.
Usefully, there was discussion of a convergence of the Protect-Respect-Remedy framework with the emerging standards formulated by entities such as the OECD, but with a caution that such convergence not imperil the autonomy of either effort. "Reference was made to the OECD Corporate Governance Principles and their possible application in the area of business and human rights. It was suggested by some that greater links be explored between the Principles and the OECD Guidelines for Multi-national Enterprises. However there was caution that any review of either document would likely not be connected to the other on an institutional level." Summary Report at 16. Enthusiasm was dampened for this project because observers rightly noted that the embrace of the OECD framework was extremely uneven--places like the United Kingdom were moving aggressively to incorporate the OECD norm structure, while others, and notably the United States (even under the current more liberal administration) appear to treat their obligations as an afterthought--at best. See Backer, Larry Catá, Rights and Accountability in Development (Raid) V Das Air and Global Witness V Afrimex: Small Steps Toward an Autonomous Transnational Legal System for the Regulation of Multinational Corporations (June 30, 2009). Melbourne Journal of International Law, Vol. 10, Forthcoming. Yet that problem might be considered an opportunity as well. Enforcement, the crux of the problem, is at the center of the Third Pillar of the SRSG framework. It is likely that efforts to confront the enforcement issue within the OECD framework might provide guidance for related efforts, and vice versa.
And indeed, the participants touched on enforcement efforts that might be more carefully explored in the future. The most effective of these sought to deploy polycentricity in the service of indirect enforcement in interesting ways. Most useful for the idea that soft law, like the OECD codes, can move toward effective enforcement, not through public legislative efforts, but through the requirements of other private bodies. A layering of regulatory efforts by related governance bodies--public and private--might well create an enforcement net that effectively achieves a mandatory compliance. But that compliance would be a function of choices and desires of the target entities, rather than applied in the usual form--from a regulatory source. Thus, "there was some consensus amongst participants that voluntary corporate governance codes are (a) rarely entirely voluntary, particularly when they are linked to listing rules or other regulations on a “comply or explain” basis; and (b) can play an important ground clearing role in raising comfort levels for new principles and eventually facilitating legislative change. State CSR policies and other guidance materials may play a similar role." Summary Report at 16.
Though this discussion was extremely helpful and tended to push the discussion forward in significant ways, the discussion also generated a certain level of frustration. It became clear that the focus tended toward working around regulatory incoherence rather than confronting it. The principal issue, around which all session were organized, was the possibility of a regulatory convergence of sorts--corporate governance and human rights. Yet throughout, each remains encapsulated in their own sphere. As long as human rights remains effectively something other than a natural and critical component of corporate governance, the approach will always involve "stitching" of some sort. And stitches can never be as secure as strands woven together into an integrated piece. That reweaving will require more than efforts to modulate the current approaches to corporate governance. Ultimately that frustration might lead regulators to avoid corporate law in favor of other approaches. That was implied in my reading of the concluding remarks of the SRSG.
The panelists usefully first suggested the role of institutional investors in helping shape corporate governance policy. The suggestion was made that such investor action might be effective in shifting corporate culture and activities with respect to human rights. The focus was on state pension funds--which are large and effective in the United States and other developed States. Summary Report at 11-12. Little mention was made of state sovereign wealth funds. One in particular, the Norwegian Sovereign Wealth Fund has become a global leader in incorporating considerations of human rights in both its investment decisions and in its role as a shareholder. See, Backer, Larry Catá, Sovereign Wealth Funds as Regulatory Chameleons: The Norwegian Sovereign Wealth Funds and Public Global Governance Through Private Global Investment (May 4, 2009). Georgetown Journal of International Law, Vol. 41, No. 2, 2009.
A very interesting turn in the discussion, especially in light of the sophistication of large investors and their counsel, was the "confusion amongst investors as to whether they were even allowed to consider social issues, including human rights, and thus government declarations could be helpful in assuring investors that such considerations need not conflict with their fiduciary duties." Summary Report at 12. Yet it has been a hallmark of American corporate law for almost a century that while directors and perhaps controlling shareholders have fiduciary duties that extend to some extent to their conduct as shareholders, non controlling shareholders are free to vote and act in their own interest--which could include an interest in fostering a greater sensitivity to human rights. There are limits, of course, but none that would suggest that shareholders breach a duty by insisting on the adoption of human rights sensitive behavior by corporate officers and directors. Indeed, as the SRSG suggested elsewhere, such activity could be justified on conventional values maximizing grounds. Indeed, the suggestion of the use of sustainability of indices, like the Dow Jones Sustainability Index (Summary Report at 12-13) also suggest the utility of such shareholder action in conventional settings.
6. Board Composition (Summary Report at 13).
One of the most topical areas of policy discussion in corporate governance circles over the last several decades has focused on the composition of boards of directors. As policy consensus has moved from notions of managerial privilege (and insider boards) to shareholder democracy (and boards composed of independent directors), this issue has found its way to the center of a host of corporate governance debates. The work of Stephen Bainbridge in the United States is instructive. See, Bainbridge, Stephen M., Director Primacy: The Means and Ends of Corporate Governance (February 2002). UCLA, School of Law Research Paper No. 02-06. At the same time, the courts in the United States continue to protect the prerogatives of directors against shareholder direct or derivative action. While shareholder democracy has advanced as a policy concept, its manifestation has not had much of an effect on changing the distribution of power between shareholders as a class and directors. For a recent case, see In Re The Dow Chemical Company Derivative Litigation, Cons. No. 4339, (Del. Ch., Jan. 11, 2010), read opinion here. For a discussion of the opinion, see Kevin Brady and Ryan Newell, Delaware Court of Chancery Dismisses Dow Shareholders' Derivative Claims Regarding Rohm and Haas Acquisition for Failure to Plead Demand Futility, Delaware Corporate and Commercial Litigation Blog ,January 17, 2010. Within the debate outside the United States, the issue of board composition has served as the site for advancing a stakeholder model of governance over a shareholder primacy model. Stakeholder governance has been given short shrift in the United States but remains popular among academics and government officials outside the U.S. Those notions were very much in evidence in the form of the debate. The combination of issues--outside versus inside director models and stakeholder versus shareholder representation models was nicely represented in the discussion.
The discussion on board representation was grounded in the conventional parameters of the debate within global corporate law circles--the value of including labor representatives on the board (in two tier board structure son the supervisory board) and the issue of independent directors (again in a two tier board structure at the supervisory board level). There was a sense that this form of organization can be effective, though there are transaction costs involved. For some, a two tier board structure "could assist corporate cultures respectful of rights by instituting further checks and balances for the acts of the managerial board. The supervisory board may also provide a safer space for key stakeholders, such as employees, to raise concerns." Summary Report at 14. But that is only marginally useful in fostering a structural system that meets the SRSG's object of managing corporate governance structures to produce an mandatory engagement with human rights at the director level. The same could be said of the utility of independent directors on boards. See id., at 14. The difficulty, of course is the inherent coherence of conventional corporate law--in a system nicely structured to further the interests of shareholders, a system in which shareholders are the objects and instruments of director discipline, structural changes to the board that change the decision structure of the board necessarily implicate the shareholder supremacy norm of corporate organization, at least as a matter of corporate law.
Interestingly, the Chinese perspective suggested that such an approach was more likely to be effective within the state corporate sector, and that "attention will need to be paid to whether it is being respected in substance by privatized companies." Summary Report at 13. Yet it is well known that formal inclusion can be a means of effective exclusion--an open secret in the context of German co-determination. Moreover, in state owned industries, the convergence of public obligation and private responsibility converge. The critical issue ion the SOE context is enforcement. States are well practiced int he art of suggesting conclusions and interpretations that advance their interests. Without effective systems of accountability, including transparency, such statements are untested and subject to abuse. But here one bumps up against the conventional norms of the state system itself--as the Chinese government officials made clear at the Copenhagen Climate Conference recently, it is one thing to induce states to commit to certain obligations, but it is quite another to implant systems of accountability that are not wholly under the control of the reporting state. For the Chinese issues of sovereignty mask sensitivities to a neocolonialist past and a desire to avoid international discipline. But those issues remain very real either when directly implicated in the case of SOEs or indirectly in the context of the First Pillar generally. If the state's obligation to protect does not include monitoring and transparency requirements vested in the community of states subject to the same strictures, then it will be difficult to monitor compliance. Balancing sovereignty concerns and the needs for accountability and enforcement in the First Pillar context may prove difficult--yet it presents an important and necessary exercise.
But there was also discussion of gender representation on boards--with reference to France's recent consideration of gender quotas for board representation. Summary Report at 13-14. "focusing on gender representation, several participants noted other examples of legislative developments in Norway, Sweden and Denmark. It was suggested that much could be done to increase international policy coherence in this area by encouraging governments to consider developments in other states when constructing their own policies and laws." Summary Report at 14. The constitutional difficulties of such approaches was noted as well. Summary Report at 14. Additional difficulties of any uniform approach to board composition was emphasized, especially in its application within developing states. Id. And indeed, in developing states, issues of essentializing board representation (women members to represent women's interests; ethnic representatives; representatives of religious constituencies and the like) presents both internal and external constituencies difficulties. This, it was suggested theater "Moving back to the topic of employee and gender representation, it was highlighted that in order for such representation to be effective, it should be accompanied by guidance for those representatives of whose interests they are there to serve and what steps they may take to promote them." Id., at 14. And, indeed, the difficulty is a matter of focus--if the object is to manage formal structures of corporate governance to ensure a mandatory sensitivity to issues of human rights in corporate activities, the exercise of formalist pluralism might miss the mark, though it serves other potentially useful objects.
But issues of board composition in the context of developing the habit of human rights sensitivity is not merely about board composition. There is a structural element that is worth discussing. For that purpose the SRSG focused on "the arguments for or against requiring or incentivizing boards to create “CSR” or “ethics” sub-committees designed to monitor social, environmental and governance issues, including human rights" Summary Report at 13. The general consensus appeared to be dismissive: "On the issue of board sub-committees on corporate social responsibility, it was argued that such issues need to be considered as part of the board’s ordinary business. The contention was that as soon as such issues move into a “sub”-committee, they lose prevalence and focus." Summary Report at 13. Yet form an American perspective, this is a notable conclusion. The thrust of U.S. law over the last decade or so has been to use the flexibility in Board organization and operation to demand delegation of critical functions to duly constituted sub committees of the board. These sub committees are given broad authority over specific areas--principally relating to nominations to the board, compensation, and financial issues. Rather than serving as burial grounds for issues that are marginalized, they serve as centers of board power. And, indeed, in the case of regulation like the Sarbanes Oxley Act, allow the regulator to specify the qualifications of members of such powerful sub committees without otherwise interfering with the power of the company to ground selection of other board members on the basis of other criteria (connections, wealth, etc.).
7. Policy Coherence and other corporate governance tools (Summary Report at 15).
Of course, the prior discussion implicated issues of coherence in a fairly comprehensive way. I have suggested that which it is true enough that there is a substantial amount of incoherence within domestic legal orders, especially as between human rights regulation and corporate regulation, there is a substantial coherence within corporate law. But coherence in this context tends to work against the SRSG's principal objectives with respect to the use of corporate law (as currently framed) to advance the First Pillar state obligation to protect human rights. The discussion of approaches to "coherence."
One approach to policy coherence rests on process issues, principally consultation. The U.K. approach suggested a focus on internal coherence, that is on harmonization within a domestic legal order by reference to its own internal logic. "The first speaker discussed the adoption of the UK Companies Act. It was highlighted that there was a significant level of public consultation for most aspects of the Act, which provided a variety of stakeholders with the opportunity to note their concerns and ideas, including different government departments." Summary Report at 15. In contrast the Danish approach suggested an externally based approach--grounding coherence on standards generated within a global context and then transposed into the Danish legal order. Id. The Danish approach suggested difficulties--principally international policy incoherence. Reliance on soft law developments at the transnational level, and contextual flexibility were suggested as necessary for the evolution of transnational standards. Summary Report at 15-16. Yet this suggests fracture as well as harmonization. If human rights are understood quite distinctly within particular national orders, the possibility of gaming the system to the advantage of flexible multinational corporations: such entities might move operations to places that maximize their income and minimize the obtrusiveness of otherwise applicable principles might be too hard to resist--and even harder to police.
Usefully, there was discussion of a convergence of the Protect-Respect-Remedy framework with the emerging standards formulated by entities such as the OECD, but with a caution that such convergence not imperil the autonomy of either effort. "Reference was made to the OECD Corporate Governance Principles and their possible application in the area of business and human rights. It was suggested by some that greater links be explored between the Principles and the OECD Guidelines for Multi-national Enterprises. However there was caution that any review of either document would likely not be connected to the other on an institutional level." Summary Report at 16. Enthusiasm was dampened for this project because observers rightly noted that the embrace of the OECD framework was extremely uneven--places like the United Kingdom were moving aggressively to incorporate the OECD norm structure, while others, and notably the United States (even under the current more liberal administration) appear to treat their obligations as an afterthought--at best. See Backer, Larry Catá, Rights and Accountability in Development (Raid) V Das Air and Global Witness V Afrimex: Small Steps Toward an Autonomous Transnational Legal System for the Regulation of Multinational Corporations (June 30, 2009). Melbourne Journal of International Law, Vol. 10, Forthcoming. Yet that problem might be considered an opportunity as well. Enforcement, the crux of the problem, is at the center of the Third Pillar of the SRSG framework. It is likely that efforts to confront the enforcement issue within the OECD framework might provide guidance for related efforts, and vice versa.
And indeed, the participants touched on enforcement efforts that might be more carefully explored in the future. The most effective of these sought to deploy polycentricity in the service of indirect enforcement in interesting ways. Most useful for the idea that soft law, like the OECD codes, can move toward effective enforcement, not through public legislative efforts, but through the requirements of other private bodies. A layering of regulatory efforts by related governance bodies--public and private--might well create an enforcement net that effectively achieves a mandatory compliance. But that compliance would be a function of choices and desires of the target entities, rather than applied in the usual form--from a regulatory source. Thus, "there was some consensus amongst participants that voluntary corporate governance codes are (a) rarely entirely voluntary, particularly when they are linked to listing rules or other regulations on a “comply or explain” basis; and (b) can play an important ground clearing role in raising comfort levels for new principles and eventually facilitating legislative change. State CSR policies and other guidance materials may play a similar role." Summary Report at 16.
Though this discussion was extremely helpful and tended to push the discussion forward in significant ways, the discussion also generated a certain level of frustration. It became clear that the focus tended toward working around regulatory incoherence rather than confronting it. The principal issue, around which all session were organized, was the possibility of a regulatory convergence of sorts--corporate governance and human rights. Yet throughout, each remains encapsulated in their own sphere. As long as human rights remains effectively something other than a natural and critical component of corporate governance, the approach will always involve "stitching" of some sort. And stitches can never be as secure as strands woven together into an integrated piece. That reweaving will require more than efforts to modulate the current approaches to corporate governance. Ultimately that frustration might lead regulators to avoid corporate law in favor of other approaches. That was implied in my reading of the concluding remarks of the SRSG.
He explained that all points of view would be considered as he decides what practical recommendations to make to states in this area, and that in particular he would further explore the legal and policy reform proposals made throughout the consultation. One of his tasks in doing so would be to develop guiding principles in this area that make sense to all governments, while not being so abstract as to be meaningless. And as he commented at the outset, while corporate law would remain a priority, he would also continue to look at how to drive human rights considerations into various other areas of policy and law that affect business operations. Summary Report at 18.
But corporate governance ought to provides a better basis for naturalizing human rights concerns within its self-conceptions. And it ought to be better able to produce regulatory options that naturally reflect the primacy pf human rights, even in regimes in which the economic interests of shareholders are otherwise privileged. But will require academics and policy makers to begin the task of reordering the way corporate governance--and especially the definitions of its borders-- is conceived. This is not an unusual task, nor a particularly daunting one. This is an exercise that has occurred in the past. An ossified corporate governance framework in the face of changes on the ground suggests an irrelevance of corporate governance rather than the modification of the direction of changes in human organization.
8. “Brainstorming” and recommendations (Summary Report at 17).
Yet for all that, the discussion produced a series of very interesting suggestions that are worth considering. Summary Report at 17-18. They are worth careful consideration both for their utility and for suggesting the limits of managing change through the conventional approaches to to corporate governance.
8. “Brainstorming” and recommendations (Summary Report at 17).
Yet for all that, the discussion produced a series of very interesting suggestions that are worth considering. Summary Report at 17-18. They are worth careful consideration both for their utility and for suggesting the limits of managing change through the conventional approaches to to corporate governance.
Beyond the excellent suggestions summarized in this section, it might be worthwhile to focus as well on the issue of the internal coherence of the suggested approaches and then, in turn to examine their aggregate coherence in the face of other regulatory movements. This will provide lots of grist for the academic and policy mill.
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