Rules and Reality--On the Importance of Method as Governance: The Example of Airline Reimbursement Rules

I have recently suggested the importance of toolboxes and the methodologies of standards implementation as a source of governance in their own right.  I have focused on surveillance methodologies.  Larry Catá Backer, Global Panopticism: States, Corporations and the Governance Effects of Monitoring Regimes. Indiana Journal of Global Legal Studies, Vol. 15, 2007. But I have also noted the importance of implementation rules and their substantive effects.    Larry Catá Backer, “Welfare Reform at the Limit: An Essay on the Futility of ‘Ending Welfare as We Know It,’” 30 Harvard Civil Rights-Civil Liberties Law Review 339 (1995).

(From Christopher Elliott, The Navigator: How the airlines handle the ‘mishandled’ luggage problem, The Washington Post, July 31, 2011.)

Almost on cue, Christopher Elliott, the National Geographic Traveler Magazine reader advocate published a column providing an important example of the ways in which implementation, and the rules developed for that purpose, can effectively change and sometimes undo, the standards which these purport to apply.  Christopher Elliott, The Navigator: How the airlines handle the ‘mishandled’ luggage problem, The Washington Post, July 31, 2011.

Effective Aug. 23, new rules will require airlines to refund any fee for checked luggage if the bag is lost. However, the current requirements for compensating passengers for reasonable expenses won’t change, nor will the maximum compensation for lost luggage.
How do airlines persuade us to accept less? They ask for original receipts that they know we don’t have. They claim that they don’t cover fragile items, such as electronics and collectibles. They take forever to process our claims, dragging things out for so long that we forget what we lost.
For the past three years, checked luggage has been a huge profitmaker for air carriers. The industry collected more than $3 billion in baggage fees in 2010, compared with just $464 million in 2007, the year before the legacy airlines adopted a fee for the first checked bag. And for three years, the industry has essentially had it both ways — collecting our money and then losing our luggage without any meaningful consequences. (Id.).

Mr. Elliott reminds us, both in the case of government regulation through law and standard setting in the emerging sectors of corporate social responsibility, including the human rights effects of business practice, that a focus on standard setting is glorious.  Much energy is spend on the elaboration of standards and their memorialization in the loftiest of instruments.  Standards and instruments are the stuff of media coverage and the royal road to fame and fortune for those stakeholders involved in their construction.  But real governance power is not confined to standards and the instruments  that house them.  Real governance is effectuated in the plain and usually hidden mechanics of getting from right to remedy.  The rules and processes through which this is accomplished requires tedious work, usually well out of the spotlight--and thus less interesting for those who prefer the fame and fortune of the limelight to the hard work of effective realization.  But the rewards, in terms of deploying governance power at the operational level, can be enormous.  My colleague at Penn State, Crystal Stryker, reminded me of the epic 2009 hit called “United Breaks Guitars” that describes the experience of one unlucky traveler trying to get reimbursed for a broken guitar.  In effect, standards serve as only a part of the business of governance;  implementation provides another.  In governance environments in which the effects of regulation can have electoral effect--aggrieved people vote and make consumption and investment decisions--a focus on this least visible part of governance might be useful for stakeholders. 

Mr. Elliott wonders:  "Wouldn’t it be something if the government also set minimum compensation amounts for passengers whose luggage just went astray for a day or two? I wonder how it would affect the mishandled baggage tally — and how it would move the needle on the billions of dollars in luggage fees the airlines collect every year."  Christopher Elliott, The Navigator: How the airlines handle the ‘mishandled’ luggage problem, The Washington Post, July 31, 2011.  I suspect the answer would depend on the ability of the airlines to concoct a system of remedies that effectively discourages the vindication of rights. To accomplish this through an invocation of the bland language of process and standard methodologies, of cost effectiveness and the need to prevent fraud, is truly where regulatory power lies.

 

Harmonization and Control: A Convergence of Soft Corporate Social Responsibility Standards and the Rise of the Toolbox

 (From Mallen Baker, Corporate Social Responsibility - What does it mean?)

Over the last decade, corporate social responsibility has become more accepted among investors, non-governmental communities and consumers in developed states.  

 Corporate social responsibility (CSR) has become a fairly well-established concept, with a vast if inconsistent literature developing over the last 15 years. As applied to corporate entities, CSR suggests that organizations can do well by doing good, but there is no single commonly accepted definition. Most would agree that CSR implies something more than corporate philanthropy, and usually refers to a bundling of substantive efforts in the areas of the environment, human rights and labor. For many, the scope of CSR is co-extensive and interchangeable with the "people, planet, profits" mantra of sustainable business practices; others would argue that CSR is closely related to sustainability, but steers clear of the financial viability of the organization that is accepted in "triple bottom line" sustainability thinking. (Ira Feldman, ISO 26000 Social Responsibility Guidance Standard,  The INECE Newsletter, Vol. 15 Summer 2007).

As a consequence, there has been a proliferation of corporate social responsibility standards produced by states (as best practices; securities exchanges, non-governmental organizations, public international organizations and hybrid organizations.  Because there is no monopoly on governance power with respect to adherence to these standards, something like a market for standards has developed.  Success is measured not merely by the ability to prod governments into some form of recognition of the standards.  Perhaps more importantly, it is measured by the willingness of companies to adopt the standards, non-governmental organizations to use the standards as a basis for monitoring compliance, information media to presume the standards legitimate  and important in determining the importance of conformity as news items. investors to adopt the standards as a measure of investment quality, and consumers to use information about conformity to the standards to determine their willingness to consume products. 

But competition also produces tendencies to imitate "winners" and avoid "losing" efforts.  That produces a move toward convergence.  In addition, increasing market share and voice within markets produces a tendency toward harmonization of standards.  Lastly, the proliferation of standards and market competition, especially where the taste for standards differ within distinct sectors of the global community  also creates incentives toward divergence, as standards are custom fitted to the needs and tastes of consuming sectors.   See, Larry Catá Backer, Luc Fransen: "Why Do Private Governance Organizations Not Converge?" Law at the End of the Day, June 2, 2011. 

The possibilities of harmonization by organizations with distinct but converging standards are nicely illustrated in the context of the U.N. Global Compact and the ISO 26000: Guidance Standard on Social Responsibility. 

The release of “ISO 26000: Guidance standard on social responsibility” gives a boost to ongoing efforts by the UN Global Compact to establish widespread common understanding of corporate responsibility principles. ISO 26000 and the UN Global Compact are connected by a fundamental belief that organizations should behave in a socially responsible way.

Given the operational reach of the ISO organization, ISO 26000 can help to build local capacity to advance universal principles in business – particularly in developing countries – which is a critical step in mainstreaming the business-so- ciety agenda everywhere and achieving a level global playing field for all businesses.

This short publication provides a high-level overview of the key linkages between the UN Global Compact’s Ten Principles and the core subjects of social responsibility defined by ISO 26000 (human rights, labour practices, the environment, fair operating practices, consumer issues, community involvement). While not an exhaustive review of the numerous areas of alignment between the two initiatives, this publication shows that there is clear consistency – and that all UN Global Compact Principles are included in ISO 26000. (From U.N. Global Compact and International Standard 26000, An Introduction to Linkages Between UN Global Compact Principles and ISO 26000 Core Subjects, 2010).

The UN Global Compact welcomed the new guidance standard and has signed a Memorandum of Understanding with ISO to this effect, and had the Linkages document endorsed by Global Compact Local Networks in 2010.  See, Larry Catá Backer, Harmonizing Transnational Corporate Governance--Communication Among CSR Soft Law Framework Systems, Law at the End of the Day, Jan. 15, 2011.

Yet, there is substantial activity in the standards development and implementation sector beyond public sector activity.  As interesting are private efforts at harmonizing standards through managed amalgamation.  European governance managers have become quite good at the construction of governance "toolboxes" which bring together a host of standards in an organized and directed manner that can then be systematized and organized for use by companies and stakeholders.  One of the more interesting is that put together by organizations representing public-private governance partnerships.

 One is CSR Europe.

CSR Europe is the leading European business network for corporate social responsibility with around 70 multinational corporations and 29 national partner organisations as members. The organisation was founded in 1995 by senior European business leaders in response to an appeal by the European Commission President Jacques Delors. It has since grown to become an inspiring network of business people working at the very forefront of CSR across Europe and globally.

The Largest CSR Network in Europe

CSR Europe’s network of national partner organisations
brings together 28 membership-based, business-led
CSR organisations from 25 European countries. In total,
the network reaches out to more than 3,000
companies throughout Europe. (From CSR Europe - About Us).

CSR Europe has produced a toolbox integrating CSR frameworks in a way that permits a corporate entity to maximize the utility of these standards for its operations. 

CSR Europe's Toolbox includes information, ideas and advice designed to help companies and their stakeholders address socio-economic and environmental challenges and integrate corporate social responsibility (CSR) into mainstream business practice. The Toolbox is based on the first results of the CSR Laboratories, cross-sectoral business-stakeholder cooperation projects under the umbrella of the European Alliance for CSR.

The first results of the Laboratories were launched in December 2008 as part of CSR Europe's Toolbox. In 2009-2010, CSR Europe's national partners organised a Toolbox Roadshow with events around Europe to present and build upon the outcomes of the Laboratories. (From CSR Europe,  CSR Europe's Toolbox, Equipping Companies and Stakeholders for a Competitive and Responsible Europe).

The toolbox is divided into five parts:  (1) Integrated workplace; (2) Human Capital; (3) (R)Evolutionary Business Models; (4) Sustainable Production and Consumption; (5) Communication and Transparency. (Id.). The toolbox provides a useful window on private sector  approaches to the management and exploitation of CSR in Europe.  It also provides an important window on the assessment by multinational corporations of the expected changing political, social, demographic, cultural and political landscape of Europe over the next several decades.  

The toolbox also provides a powerful means of managing of CSR instruments and standards. Tools can have significant governance effects by the nature of their form and the way in which tools embody meaning by emphasizing some aspects of meaning and reducing the power of others.  The Labour Rights and Responsibilities Guide provides a useful categorization of these tools by type:

  In order to enhance coherence, the selected tools have been classified predominantly according to the guidance material categories used by the Office of the  UN Global Compact. The categories under which each tool is classified are indicated under the heading "type" in the evaluation sheets:  

Benchmarking: These tools provide indicators that serve to measure continuous progress and allow the comparison of performance results with other companies. See e.g. the BITC CR Index (Business in the Community).

General Guidance: The tools provide information about human and labour rights and may highlight specific issues. They may include policy advice or case studies or serve as resource documents. See e.g. the Labour Principles of the UN Global Compact (International Labour Organisation, Office of the UN Global Compact).

Human Rights Compliance Assessment: Compliance Assessments measure the performance of companies against the legal framework of human and labour rights. They can be conceived as self-assessments or conducted by external consultancies. See e.g. Human Rights Compliance Assessment (Danish Institute for Human Rights).

Human Rights Impact Assessment: These tools are specifically designed to help users in assessing and measuring the concrete risks of their business operation or project for corporate stakeholders. They usually contain specific questions for identifying possible interferences with human rights and may give advice on how to mitigate adverse effects. See e.g. IBLF Guide to Human Rights Impact Assessment and Management (International Business Leaders' Forum, International Finance Cooperation, UN Global Compact).

Human Rights Risk Assessment: Risk Assessments measure the potential operational and reputational risks of becoming involved in human rights violations. They help to detect general human rights risks e.g. in a country or region or a certain sector. Compared to human rights impact assessments, they do not guide the company in assessing the specific human rights impact of particular projects or company conduct. See e.g. Country Risk Assessments (Danish Institute for Human Rights), Maplecroft tools (Maplecroft).

Human Rights Training: These tools give, for example, advice on how to conduct successful workshops. See e.g. IPIECA Human Rights Training Toolkit (International Petroleum Industry Environmental Conservation Association). Moreover, trainings can also be part of human and labour rights monitoring systems. See e.g. BSCI process.

Human Rights Reporting and Monitoring: The tools support, for instance, the preparation of a company report. Moreover, specific monitoring and auditing systems such as SA 8000 are equally classified as human rights reporting because they entail regular reporting or auditing obligations. See e.g. SA 8000 process (Social Accountability International). (From "Definition of a LARRGE “tool”).

Each of these forms of implementation can effectively rework the standards to serve the entity utilizing the tool.  True, the framework itself will limit flexibility--the tools cannot be use dot undo the standard, but the tools themselves permit a broad enough range of application that can effect local divergence even within a framework of global convergence.
 

By serving as the clearinghouse for a mechanics of application, cooperative ventures like CSR Europe can serve as a significantly important consumer of standards and instruments. Consumption function on this scale can have an effect on the shape of the standards developed, or more importantly, those that acquire a larger market share (and thus a greater scope of legitimacy among public and private actors).  The producers of standards will tend to be sensitive to the desires of large scale consumers (or entities that can influence consumption) in producing their standards. More importantly, consumer clearinghouses like CSR Europe can have an important effect on retail consumption--that is on the way in which end users will approach CSR and the consumption of CSR standards--determining the way that these standards are understood and applied.  Large scale application (and the control of that application) can also have an affect on the understanding of the standards and an acceptance of what constitutes acceptable implementation.  At its very best, the toolbox itself can become the standard, without changing a word of the instruments from which the standards are derived. This is convergence of a completely different sort, on ein which practical implementation might well affect the meaning of the substantive standards sought to be applied..

Business and Human Rights in China: Sustainability Reporting and Chinese Stock Exchanges

It is a commonplace that Chinese officials tend to be leery of the notions of human rights, especially when being lectured on its finer points by foreigners. From the Chinese perspective, the global human rights discourse might represent a disguised attempt to effectuate changes in Chinese political or social organization, and in any case represents an effort to change behaviors in accordance with standards that the Chinese did not help develop.  These suspicions are augmented by sensitivities that continue to be cultivated relating to the period of semi colonialism that ended with the establishment of the current government under Deng Xiaoping.  From the western perspective, the global human rights discourse represents little more than the implementation of global consensus, with respect to which China is both bound and has to some extent participated.  Chinese exceptionalism represents a form of arrogance at odds with the development of global culture, especially with respect to business practices, necessary for the continued development of harmonious communal global economic ties. Thus, for the Chinese, western usage of human rights can be seen as a weapon to be used against their institutions; for the West, human rights can be seen as a tool to be used by all governments for the betterment of their peoples.

 (From Rosie Bristow, Online Discussion: Sustainability Reporting, The Guardian (UK) April 18, 2011)

Yet, beyond the rhetoric and the political symbolism of specific words, it appears that Chinese institutions are seeking to implement, at least in some form, global expectations of business and business conduct that, at least in the West, is understood as touching on issues of human rights, but in China may be best understood as conforming to Party line notions of harmonious society (和谐社会) and scientific development (科学发展观) principles. "The central government is encouraging state-owned enterprises to fulfill social responsibilities and realize sustainable development. A document released by the State-owned Asset Supervisory Administrative Commission (SASAC) in 2008 urges all central-level state-owned enterprises to focus sustainability management on the following eight issues: legal compliance and integrity, sustainable profitability, product and service quality, resource efficiency and environmental protection, technology innovation, workforce safety, workers’ rights, and social welfare." (From International Finance Corporation and Shanghai Stock Exchange, Sustainability Reporting Guidelines Mapping & Gap Analyses for Shanghai Stock Exchange,  prepared by Syntao June 2011).  

This is particularly apparant in the deployment of Chinese market institutions for the encouragement of a business culture of sustainability reporting. "Non-financial reporting, such as sustainability and CSR reporting, is a fairly recent trend which has expanded over the last twenty years. Many companies now produce an annual sustainability report and there are a wide array of ratings and standards around. There are a variety of reasons that companies choose to produce these reports, but at their core they are intended to be "vessels of transparency and accountability". Often they also intended to improve internal processes, engage stakeholders and persuade investors."  Rosie Bristow, Online Discussion: Sustainability Reporting, The Guardian (UK) April 18, 2011.

Sustainability reporting is a process for publicly disclosing an organization’s economic, environmental, and social performance. Many organizations find that financial reporting alone no longer satisfies the needs of shareholders, customers, communities, and other stakeholders for information about overall organizational performance.

The term “sustainability reporting” is synonymous with citizenship reporting, social reporting, triple-bottom line reporting and other terms that encompass the economic, environmental, and social aspects of an organization’s performance. (From Global Reporting Initiative, FAQs, Sustainability Reporting: Who, How, Why; What is Sustainability Reporting).

Like financial reporting, sustainability reporting requires a development of generally accepted principles to encourage uniformity on reporting.  "Without a similarly accepted framework for sustainability reports, such reports could lack the features that could make them broadly useful: credibility, consistency, and comparability. If the thousands of companies that voluntarily disclose their sustainability impacts did not refer to a generally accepted reporting framework, they would risk producing non-comparable reports, and/or reports which inadequately address the full spectrum of stakeholder interests." (From Global Reporting Initiative, FAQs, Sustainability Reporting: Who, How, Why; Why do We Need the GRI Reporting Framework?).  A number of entities, public and private, have been competing for dominance in the development and control of these commonly accepted reporting and transparency principles.

China, like other states, has begun to use market driven governance devices to encourage the use of sustainability reporting.  

More Chinese companies are producing sustainability reports, according to standard-setter the Global Reporting Initiative (GRI), driven largely by regulation and stock exchange listing requirements. Marjolein Bajhuis, Amsterdam-based director of communications and network relations for the GRI, said the number of sustainability reports produced in China has risen from 600 in 2009 to about 700 in 2010. Of these, around 60 applied the GRI’s guidelines. Chinese firms are increasingly required to produce such reports by regulation – including the listing requirements of the Shanghai Stock Exchange. (From Sustainability reporting on rise in China, Environmental Finance, June 14, 2011).

The efforts of the Shanghai Stock Exchange provide a nice example of the Chinese approach to soft governance in the promotion of sustainability reporting, and through them, of changing business practices with respect to the behaviors highlighted in those reports. In an informational release, Raising CSR standards and disclosure practices (World Federation of Exchanges), the Shanghai Stock Exchange explained:

In May 2008, the SSE issued a Notice on Strengthening Listed Companies' Assumption of Social Responsibility (Shanghai CSR Notice) and the Guidelines on Listed Companies' Environmental Information Disclosure (Shanghai Environmental Disclosure Guidelines). According to the two documents, Shanghai Exchange-listed companies should fulfill social responsibilities, address interests of stakeholders, and commit themselves to promoting sustainable economic and social development.

These two initiatives are based on the philosophy that the SSE’s listed companies are pillars of the national economy and should be encouraged to assume a leadership role in promoting sustainable development. For listed companies that promote CSR, the SSE sometimes offers incentives such as priority election into the Shanghai Corporate Governance Sector, which may benefit a company's public image, or simplified requirements for examination and verification of temporary announcements.

The Shanghai notice encourages all listed companies to enhance their own CSR awareness and develop a strategic CSR plan for their operations. Listed companies may disclose the goals and achievements of their CSR activities and annual social responsibility reports through announcements posted temporarily on the SSE website. To assist with this, the SSE has also developed the concept of social contribution value per share (SCVPS) - a new method of measuring companies' value creation. SCVPS is calculated by adding the tax revenues paid to the state, salaries paid to employees, loan interest paid to creditors (including banks), and donations to - and other value for stakeholders, minus any social costs that arise from environmental pollution and other negative factors. SCVPS is intended to allow the public to understand the value companies create for their shareholders, employees, customers, creditors, communities, and society as a whole. Companies may choose to disclose their SCVPS calculation in their annual CSR reports.

The Shanghai Environmental Disclosure Guidelines indicate that the SSE may “adopt necessary punishment measures” against companies and relevant personnel for violations of the disclosure rules and regulations. They do not, however, define “necessary punishment measures”. It is therefore unclear what sanctions or fines could be imposed for violations.

A similar measure has also been taken by the Shenzen Stock Exchange, which issued CSR Guidelines for Listed Companies in 2006.

In these efforts, of course, the Shanghai Exchange is seeking to move into the vanguard ranks of Exchange governance of issues of social and corporate responsibility.  See, e.g., Dan Siddy, Delsus Ltd., Exchanges and Sustainable Investment (2009).  More recently,  "IFC, the private sector investing arm of the World Bank Group, has collaborated with the Shanghai Stock Exchange (SSE) to investigate current best practice in international and Chinese sustainability reporting practices, and ultimately to develop a more comprehensive reporting guideline for listed companies. As the first step, IFC and the SSE contracted SynTao, a knowledge leader on sustainability reporting in China, to undertake a mapping and gap analyzing study."  International Finance Corporation and Shanghai Stock Exchange, Sustainability Reporting Guidelines Mapping & Gap Analyses for Shanghai Stock Exchange,  prepared by Syntao June 2011, at 3.    

The abstract describes the project this way:

In recent years the number of companies releasing sustainability reports has continued to increase on a global level as well as in China specifically. According to Klynveld Peat Marwick Goerdeler (KPMG), in 2008, 79 percent of global 250 companies published sustainability reports. In China, the number of sustainability reports reached over 700 in 2010. There is a widely established expectation that companies wanting to obtain a leadership position and become competitive in the global marketplace need to effectively manage their environmental and social performance, disclosing challenges and achievements in a sustainability report. Moreover, corporate product and service innovation should aim to contribute to society's well-being. Studies show that in China, however, most companies release sustainability reports for reasons of reputation and development of government relationships, not fully taking advantage of opportunities for risk management and investor relations. The study included a wide literature review and interviews with a selection of key stakeholders. A general comparison was undertaken of the characteristics of 25 existing international and national frameworks related to corporate disclosure. (World Bank, Research, Announcement and Abstract: Sustainability reporting guidelines mapping and gap analyses for Shanghai stock exchange, June 1, 2011).

 The recommendations included the following;

0. Stock Exchanges are increasingly stepping in to help address the need for improved dialogue between investors and listed companies on the topic of sustainability. The Johannesburg Stock Exchange in South Africa now requires that listed companies prepare an integrated annual report, which includes coverage of sustainability performance. The U.S. Securities and Exchange Commission issued guidelines in 2010 requiring companies to weigh the impact of climate-change laws and regulations when assessing what information to include in corporate filings.
   
   The Shanghai Stock Exchange (SSE) has followed this trend by becoming one of the first stock exchanges to issue a directive for companies to publish a sustainability report. Understandably, SSE has adopted a cautious approach by not being overly prescriptive about what companies should report. This approach has been successful in helping to generate an overwhelming response by Chinese companies to produce their first sustainability reports.
   
   Publishing a first sustainability report can be resource intensive for a company, but, if internal capacity is built, the process can become much less costly in subsequent years. The current guideline is therefore a good starting point.
   
   Nevertheless, this study finds that existing frameworks provide guidance that is either too vague or too broad when it comes to the issues that companies should cover, and that they too often still allow companies to tell a good story without providing rigorous and verified data on performance.
   
   A forward-thinking framework for sustainability reporting could therefore greatly assist Chinese companies to move more rapidly towards sustainable practices that generate value for their business as well as for stakeholders. It could also provide a platform for proactive engagement between companies and investors.
   
   The gap-analysis between the SSE Directive on CSR Reporting and the four best-practice examples in this study provide suggestions for further improvement. The short-term focus should be to standardize the SSE Directive and to enrich the document with more information about potential indicators that companies can report on. Recommendations for SSE are listed below:
   
   

   Priority should be given to certain performance indicators. SSE can comprehensively or gradually prioritize certain indicators over others, thereby strengthening the guideline over time. Some suggested indicators are: energy consumption, GHG emission, solid waste and water pollutants, occupational health & safety and product safety.
   
   SSE will benefit by consulting with key stakeholders when drafting the guideline. Concerns of key stakeholder groups, especially government and regulators, investors, the media and NGOs, should be considered. By this means, the guideline can be in line with government policy and the interest of mainstream investors.
   
   SSE may consider developing specific guidelines for pilot sectors. Some sectors, such as heavy polluting sectors and the financial sector, which are highly impacted by environmental and social factors, can have sector specific guidelines.
   
   SSE may consider developing a specific guideline for pilot issues. Some issues are critical for China at the current development stage. A specific guideline focusing on the energy (carbon) issue, water, or food safety would be highly supported by government and be attractive to investors. It is highly recommended to consider the carbon issue. IFC’s Carbon Efficiency Index and Carbon Disclosure Project may provide valuable experiences to SSE.
   
   Third party audits are emerging as an invaluable component in the sustainability reporting process. An independent audit contributes to credibility of the final report; but more importantly, can help to guide companies towards particular improvements. SSE may consider recommending or requiring that companies include a third party audit of the sustainability report.
   
   Integrated reporting is a new trend. In future, financial reporting and sustainability reporting may become more integrated, leading to the publication of one single annual corporate report. It would be good if SSE can consider this trend when developing the new sustainability guideline.
   
   SSE should take measures to encourage the use of the guideline. Possible measures are: training, seminars, grading scheme of application disclosure level, mandatory third party audits, and recognition of key stakeholders.

   
   Importantly, best practice reporting and performance frameworks, as shown by this study, emphasize corporate strategy and systems for managing risks, impacts and opportunities of sustainability. Greater disclosure about these aspects will enable stakeholders to engage with the company and create shared value, while also contributing to overall improved management and business performance.(Id., at 4-6).

The recommendations are interesting for a number of reasons.  First, they recognize the string governance value of reporting regulations.  See, Larry Catá Backer, Global Panopticism: States, Corporations and the Governance Effects of Monitoring Regimes. Indiana Journal of Global Legal Studies, Vol. 15, 2007.   Second, they recognize the power of soft regulation through the use of market mechanisms in which enforcement is effectively captured to the investment community.  See, Larry Catá Backer, From Moral Obligation to International Law: Disclosure Systems, Markets and the Regulation of Multinational Corporations. Georgetown Journal of International Law, Vol. 39, 2008. .  Of course, the result is more effective and responsive governance, but that governance reflects investor rather than citizen concern--it moves governance from state to market. Third, the power transfer effect of such governance is meant to be ameliorated through polycentirc methodologies--for example the inclusion of the state as a significant stakeholder in the design of reporting  guidelines.  But importantly, the state is reduced to one of several stakjeholders, rather than the key or single stakeholder.  The result is inevitable since the regulatory ambit of the Shanghai market exceeds, in effect, the territorial limits of the Chinese state.  Fourth, the recommendations also recognize the flexibility of the sustainability reports as a tool of market sector regulation--the suggestion that guidelines be tailored to pilot sectors suggests that information, and the emphasis on particular behaviors, can serve as an effective method of managing conduct--especially conduct that can be tied to consumer or investor expectations (though not directly political expectations, except indirectly through the participation of the state in the generation of guidelines content). Fifth, the emphasis on market integrity devices is also telling.  Third party audits, and the use of Exchange personnel for technical assistance suggests both the emphasis on integrity mechanisms and the importance of the Exchange as an acculturating institution.

There is tremendous value in these efforts.  By engaging in this work, the Shanghai Exchange is in a position to greatly influence the content and scope of  sustainability reporting directly, and corporate behavior indirectly.  It can now become an influential voice in developing its own standards and affecting the development of third party standards, including those, like the GRI standards, with particular influence in the West.  That, in turn, can affect the direction of global consensus on corporate responsibility directly, and the focus of human rights discourse, especially as it affects business, indirectly. But the IFC reports (this is not the only recent effort (e.g., IFC, Assessing and Unlocking the Value of Emerging Markets Sustainability Indices, June 2011) suggest the way in which soft law frameworks, managed by international organizations networked with state run or partnered market framework institutions that are driven by the expectations of capital and consumers, can have a substantial and sustained effect on the behaviors of corporate actors.  Regulation is now a complex affair, and the relationship between regulation and sovereignty, between the people of a place and the rules that manage their behavior, is more tenuous still. See, Larry Catá Backer, Private Actors and Public Governance Beyond the State: The Multinational Corporation, the Financial Stability Board and the Global Governance Order (August 13, 2010). Indiana Journal of Global Legal Studies, Vol. 17, 2011.

From the International Commission of Jurists: "Access to Justice: Human Rights Abuses Involving Corporations, India"

The International Commission of Jurists (ICJ), with headquarters in Geneva, describes itself as "a non-governmental organisation devoted to promoting the understanding and observance of the rule of law and the legal protection of human rights throughout the world." The ICJ is well placed within the emerging matrix of supra-national organizations and is an influential contributor to norm production.  It enjoys consultative status in the United Nations Economic and Social Council, UNESCO, the Council of Europe and the African Union. The ICJ maintains cooperative relations with various bodies of the Organization of American States.  The ICJ's website provides useful information about its history,  its organization implemented through a Commission and Secretariat, which produces a number of programs and publications.

(Picture from ICJ, Access to Justice: Human Rights Abuses Involving Corporations, India," (Geneva: ICJ, 2011)

The ICJ has recently published a study of business and human rights in India that is well worth a careful read--Access to Justice: Human Rights Abuses Involving Corporations, India," (Geneva: ICJ, 2011)(ISBN 978-92-9037-153-6). 

 

(Picture from ICJ, Access to Justice: Human Rights Abuses Involving Corporations, India," (Geneva: ICJ, 2011)

The study was researched and drafted by Prof Surya Deva, School of Law, City University of Hong Kong. 

In addition, Ms Usha Ramanathan provided a draft. Mr Vimal Deepak Sadhwani, Mr Calvin Chun-ngai Ho and Ms Pooja Ahluwalia provided research assistance. Alec Milne contributed useful comments. Megan Chapman did the editorial review and Wilder Tayler did the final review at the International Commission of Jurists (ICJ). This study is part of a larger ICJ project directed by Carlos Lopez on Access to Justice and Legal Remedies in human rights abuse cases involving companies. Antonietta Elia assisted in the production. Priyamvada Yarnell coordinated its production.

The Report (with bibliography) runs about 104 pages.  Set out below is the introduction (Acess to Justice, supra, 1-3):

This report aims to critically examine legal remedies, both judicial and non-judicial, available under Indian law to victims of human rights abuses by companies. There are three main objectives of this examination: (i) to assess the efficacy of the existing regulatory framework; (ii) to identify major obstacles that victims experience in holding companies accountable for breaching their human rights obligations; and (iii) to outline recommendations that should help in overcoming these obstacles.

Access to justice and availability of effective legal remedies are crucial to the general protection of human rights and also in addressing violations by businesses. They are also essential to the work of judges and lawyers who promote the rule of law and human rights. Nevertheless, access to justice is hindered by a number of obstacles unique to corporate human rights abuses. The study of state practice in India reveals the obstacles but also the potential of the existing legal framework to ensure these rights. Scrutiny of state practices in this area will, moreover, help the international community discover new ways of addressing the challenge of corporate human rights abuse.

To contribute to understanding of the problem and to assist in formulation of a new agenda to strengthen access to legal remedies for business abuses, the International Commission of Jurists (ICJ) has undertaken a project on Access to Justice for victims of corporate human rights abuse. This project has produced a series of country studies on Brazil, Colombia, People’s Republic of China, Democratic Republic of the Congo, India, The Netherlands, Nigeria, the Philippines, Poland and South Africa, along with surveys from additional countries. The present study is the latest of these country studies.

As in many other developing countries, there are numerous instances of all types of companies – from Indian to Indian subsidiaries of foreign companies and joint venture enterprises – abridging the human rights of Indian people. In fact, one may trace early instances of corporate human rights abuses to illegal business activities such as the slave trade or opium trafficking by the British East Indian Company.1 More recent examples include the gas leakage at Union Carbide’s chemical plant at Bhopal,2 Enron’s Dabhol power project in Maharashtra,3 Tata’s proposed car plant in Singur, West Bengal,4 and Vedanta’s mining operations in tribal areas of Orissa.5

There are, however, crucial differences between the abuses committed by the British East India Company during the 17th and 18th century and the modern corporate human rights violations of the 20th and 21st century. Whereas the British East India Company did business as an agent of a colonial power, some companies now exert so much power and influence that many states willingly act as their agents and serve business interests, sometimes at the cost of the rights of poor populace. Moreover, states nowadays might not be willing to cancel the operating license of a company that infringed on human rights. In contrast, the British government in 1858 could, and eventually did, revoke the trading charter issued to the British East India Company. Such distinctions point to a change that has taken place in the relationship of companies and states.

It is also appropriate at this stage to note two key events that have significantly impacted the general landscape and legal regime for corporate human rights abuses. First was the Bhopal gas disaster of December 1984, mentioned above, which has to date killed more than 20,000 people6 and caused other ongoing medical problems and environmental degradation. Bhopal not only exposed limitations of legal norms in holding a multinational company accountable for a number of human rights violations but also triggered the amendment of laws and evolution of new legal principles through the judiciary. The second event was the adoption of the New Economic Policy by the Indian government in the early 1990s.7 The resulting environment of liberalisation, privatisation and disinvestment gave companies more opportunities not only to do business but also to exploit people and natural resources for economic gains. The government enacted special pro-business laws. On the flip side, these policies also led to organisation and institutionalisation of people’s resistance through civil society networks as well as the evolution of a more activist judiciary that seeks to strike a balance between development policies and human rights. Both these events will be discussed in detail at certain points in this report.

The study utilizes the definitions and methodology adopted by the broader ICJ Access to Justice and Legal Remedies Project. It makes use of relevant legislation, judicial decisions, case studies, media reports and scholarly writings to support its findings. The study draws from the researchers’ consultations and meetings with communities and their representatives, lawyers and judges across India, in particular in Calcutta, Bombay, Chennai and Bangalore between late 2009 and early 2010. For obvious reasons, the primary focus will be on situations where violations take place within the territorial boundaries of India. Nevertheless, the extraterritorial dimension of the regulatory framework will be considered in appropriate cases. Such an extraterritorial inquiry into the potential of regulatory framework has become inevitable in light of increasingly global operations of Indian companies.

Part 1 of the report outlines the Indian legal framework relevant to the protection of human rights and the delineation of responsibilities of companies. It will analyse relevant provisions of the Constitution, criminal law, environmental laws, workers’ welfare laws, tort law, and development-related land acquisition laws to ascertain the circumstances under which they may be invoked. Part 2 then offers a critical account of the legal remedies available to victims of corporate human rights abuses in India. Special attention will be paid to judicial innovations in this area. Part 3 elaborates various obstacles and limitations that victims face in their quest to secure justice. It is argued that despite a robust legal framework, victims’ ability to seek justice is seriously undermined by these identified obstacles. The final section draws several general conclusions and outlines India-specific recommendations that should assist victims and the legal community to overcome obstacles to holding corporations accountable for human rights abuses.

Indian numbers used in this text should be understood as follows: One lakh (1,00,000) is equivalent to a hundred thousand (100,000), and one crore (1,00,00,000) is equivalent to ten million (10,000,000).

The law is stated as of February 2011.

 NOTES:

1. See Donald C Dowling, “The Multinational’s Manifesto on Sweatshops, Trade/Labour Linkage, and Codes of Conduct”, in Tulsa Journal of Comparative and International Law, Volume 8, 2000, p. 528; Mike Marqusee, “Whitewashing the Past”, in Guardian, 24 May 2002, http://www.guardian.co.uk/education/2002/may/24/artsandhumanities.highereducation, accessed 2 February 2011.
2. Amnesty International, Clouds of Injustice: Bhopal Disaster 20 Years On, Amnesty International, London, 2004 (hereinafter Amnesty International, Clouds of Injustice).
3. Human Rights Watch, “The Enron Corporation: Corporate Complicity in Human Rights Violation”, 23 January 2002, http://www.hrw.org/reports/1999/enron/, accessed 2 February 2011.
4. See Gargi Gupta, “Singur farmers: Why they oppose Tata plant”, 9 December 2006, http://www.rediff.com/money/2006/dec/09tata.htm, accessed 2 February 2011; Kolkata, “How Tata got Singur cheap”, in The Hindustan Times, 11 September 2008, http://www.hindustantimes.com/How-Tata-got-Singur-cheap/Article1-337064.aspx, accessed 2 February 2011.
5. “Environment Ministry stalls Vedanta’s Niyamgiri project in Orissa”, in The Economic Times, 24 August 2010, http://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-svs/metals--mining/Environment-Ministry-stalls-Vedantas-Niyamgiri-project-in-Orissa/articleshow/6425059.cms, accessed 2 February 2011.
6. Amnesty International, Clouds of Injustice, op. cit., note 4, p. 12.
7. See Surya Deva, “Human Rights Realisation in an Era of Globalisation: The Indian Experience”, in Buffalo Human Rights Law Review, Volume 12, 2006, pp. 116-118.

The Report focuses its conclusions on what is now becoming a consensus position on reform: better implementation of domestic law and judicial decisions (Access to Justice, Supra, 79-80); moving toward a stakeholder maximization model of corporate governance (id., 80); improving access to justice generally, especially for portions of the population economically or otherwise unable to take advantage of rights accorded by the domestic legal order (id., 80-81); strengthening governmental institutions (id., 82); focusing on anti-corruption efforts (id., 82-83); and encouraging transparency, participation and values oriented approaches to development in which the corporation has a stake (id., 83). Some of these recommendations, especially those dealing with strengthening state capacity and governmental infrastructure are crucial.  Changing the corporate law's basic foundation in institutional or shareholder welfare maximization is likely to be a much more difficult goal to attain.  See, Larry Catá Backer, Using Corporate Law to Encourage Respect for Human Rights in Economic Transactions: Considering the November 2009 Summary Report on Corporate Law and Human Rights Under the UN SRSG Mandate,  Law at the End of the Day, Jan. 14, 2010.