Wednesday, May 03, 2017

Piecemeal Globalization of Business and Human Rights Disclosure Systems One State at a Time: A Focus on Australia

Almost a decade ago in an article, From Moral Obligation to International Law: Disclosure Systems, Markets and the Regulation of Multinational Corporations,  I suggested a potential emerging trend in the way in which global civil society--and the states most likely influenced by their efforts--would be able to enhance the importance of human rights based business regulation through systems of disclosure and due diligence.  These would fuse the soft law business and human rights normative project of international organizations and civil society with national systems that remain tied to the conventional constraints of territory and the preservation of the now century old premises of corporate law. "The object of these mandates would not be to establish a definitive set of behaviors, but rather to establish a framework within which corporate stakeholders-consumers, investors, labor, and others - could adjust their relationships on the basis of the behavior disclosed."  But the effect of these mandates would be toward the hardening of international soft law norms within domestic legal orders.  That is a trend that global civil society, at least some important elements of that community, are now committed.And it is producing important innovations at the national level with global effects.

This post considers the way that recent efforts by global civil society to align Australia within this framework of governance--by hardening international normative standards through national due diligence and disclosure legal frameworks--are shaping emerging trends that seek to create global governance of business conduct related to human rights through linkages between public and private governance institutions through public regulation of private governance.

The linkages that appear to be growing between domestic legal orders, international standard setting organizations and private organizations with respect to corporate social responsibility rules, have been most visible in the context of due diligence and disclosure regimes.  These tend to lend themselves best to the project precisely because they may be harmonized with national policy relating to the organization of their economies while aligning those structures with the normative frameworks developed at the international level.  This approach has appeared to have had some success in the last few years (discussed in part here). Three of the most recently celebrated approaches include the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (Pub. L. No. 111-203, 124 Stat. 1376 (2010) (codified as amended in scattered sections of the U.S. Code)), the U.K. Modern Slavery Act of 2015 (c.30; the transparency in supply chains is set out in § 54 of the Act), and the French Supply Chain Due Diligence Law of 2017(TEXTE ADOPTÉ n° 924 « Petite loi » Assemblée Nationale Constitution Du 4 Octobre 1958 Quatorzième Législature Session Ordinaire De 2016-2017 relative au devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre).

But these efforts, though they purport to project national legislative power outward on the backs of the enterprises over which they might extend a measure of control, have their limits. The U.S: provision has been narrowed on the basis of a challenge under principles of U.S. Constitutional Law (forced speech).  The U.K. provision requires only the development of a statement with respect to human trafficking; failure to comply might lead to a judicial order compelling its production and contempt proceedings in the event of a failure to comply with judicial orders.  Still, producing a (knowing or recklessly) false statement could expose the enterprise to liability in a variety of other ways. The French legislation imposes a positive due diligence obligation but limits liability to those harms specifically caused by the failure to publish and implement a vigilance plan.  All three limit their reach to the largest companies and leave many enterprises beyond the reach of the law.  Still, these are important advances for those who seek to use law to compel the development of a law of corporate responsibility for human rights norms. 

The efforts to produce national due diligence and disclosure regimes covering substantially similar ground, that seek to embed in law the governance standards of international norms continue another trend--the creation of strong linkages between public and private governance institutions that in the aggregate produce a global system of governance respecting business behaviors (discussed in part here).  To that end, though it becomes necessary for all states that control apex enterprises--those business organizations that occupy the apex position in global production chains--to create the linkages of due diligence an disclosure along similar lines. This effort, in turn, is built on complementary between (1) human rights related disclosure regimes and basic national principles of corporate law and governance, and (2) emerging trends in global trade regimes grounded in coordinated bilateral trade relations along production (and trade) chains.

It is in that context, of course, that recent efforts to induce Australia to align itself with the global trends becomes interesting and significant. "On 15 February 2017, the Attorney-General, Senator the Hon George Brandis QC, asked the Joint Standing Committee on Foreign Affairs, Defence and Trade ("the Committee") of the Parliament of Australia to inquire into and report on establishing a Modern Slavery Act in Australia." (HERE; and here). The action noted strong support among global business interests, investors, global civil society, and elements of the Australian state itself (Ibid).

This effort has produced a strong effort on the part of global civil society to move that process forward (here, here, and here). On March 24, 2017, "The Principles for Responsible Investment (PRI) today called on Australian investors to sign a statement in support of the establishment of a Modern Slavery Act in Australia by the Joint Standing Committee on Foreign Affairs, Defence and Trade of the Parliament of Australia. HESTA, IFM Investors and Cbus were among the first to sign the statement"(here).
Speaking to pension fund representatives at the Conference of Major Superannuation Funds at the Gold Coast, PRI Managing Director, Fiona Reynolds, said Australia had much to gain from legislation on modern slavery and could learn from best practice across the globe.

Ms Reynolds said examples of human rights legislation that were making a difference include the California Transparency in Supply Chains Act; the UK Modern Slavery Act; the EU Non-Financial Reporting Directive; and the French Corporate Duty of Vigilance law and international law; the UN Guiding Principles for Business and Human Rights; the ILO core labour standards; and the OECD Guidelines for Multinational Enterprises. Early evidence shows that both the California and the UK legislation are improving availability of information for investors, while increasing senior level corporate engagement, transparency and action on modern slavery. An Australian Act would complement these efforts, she said. (here).
That effort recently produced a statement, widely circulated among civil society and in business and human rights circles, urging Australia to adopt a 2nd generation due diligence-disclosure law that blended elements of the UK Modern Slavery Act with the French Diligence Law. "The statement suggests to keep strong elements of the UK Act, such as annual reporting and legal requirements including board approval, director signature and posting on the homepage, as well as to go beyond the UK Act and establish a central registry and include mandatory disclosure on supply chain mapping and due diligence" (here). The full statement reads as follows:

Investor statement in support of establishing a Modern Slavery Act in Australia

The undersigned global investors with US$2.13 trillion assets under management are writing to welcome the inquiry into establishing a Modern Slavery Act in Australia by the Joint Standing Committee on Foreign Affairs, Defence and Trade of the Parliament of Australia. As investors , we believe human rights issues can present potential financial impacts through reputation damage and operational risks to our portfolio companies. We therefore welcome a Modern Slavery Act which would improve transparency on how companies operating in Australia are managing modern slavery risks in their operations and supply chains.

The International Labour Organization estimates almost 21 million people are victims of modern slavery globally. In Australia, migrant workers are found in forced labour in sectors such as agriculture, construction, and hospitality, and Australian companies may be implicated in using forced labour in their supply chains through sourcing goods and services domestically and internationally. The discovery of forced labour in companies’ operations and supply chains can present risks including supply chain disruption, damage to brands and may harm companies’ license to operate. As investors, we believe these risks may impact long term returns, and we support efforts to encourage companies to improve disclosure on how they are managing these risks. Meaningful disclosure of human rights performance can play a significant role in reducing a company’s human rights risks, contribute to a company’s competitive advantage, and strengthen its long-term financial stability.

While we recognise that some large Australian companies are making efforts to provide good quality human rights disclosure, on the whole investors have limited information on Australian companies’efforts to address risks related to forced labour. Voluntary efforts of Australian companies to address human rights in the supply chain are limited and only some Australian companies are covered by foreign modern slavery due diligence and transparency efforts.

An Australian Modern Slavery Act would create a level playing field, improving the amount of information available. This would help investors to make informed investment decisions and to engage with companies to mitigate these risks. An Australian Modern Slavery Act would also complement recent legislation on human rights due diligence, such as the California Transparency in Supply Chains Act, the UK Modern Slavery Act, the EU Non-Financial Reporting Directive and the French Corporate Duty of Vigilance law and would build on international soft law, such as the UN Guiding Principles for Business and Human Rights, the ILO core labour standards, and the OECD Guidelines for Multinational Enterprises. Early evidence shows that both the California and the UK legislation are improving availability of information for investors, while increasing senior level corporate engagement, transparency and action on modern slavery. An Australian Act would complement these efforts.

Finally, we urge the Committee to ensure that an Australian Modern Slavery Act includes the following attributes, which we consider will enhance its effectiveness:

 The Act should include a requirement that modern slavery statements are authorised by the board, and signed in a manner that binds the organisation in accordance with Australian corporate law, as a means to ensure board-level discussion of these risks. This is consistent with the Modern Slavery Act in the UK.

 The Act should include an annual public reporting requirement, allowing investors to make year-on-year comparisons of companies’ efforts and progress. This is also consistent with the Modern Slavery Act in the UK.

 The Act should call for disclosure of companies’ efforts to map supply chains and to undertake due diligence. Our dialogues with companies have shown that these are often good indicators of companies’ efforts and provide investors with meaningful information.

 Finally, to enable investors and other stakeholders to easily access and compare companies’ disclosures, we recommend that an Australian Modern Slavery Act include a central repository to which companies are requested to submit their statements.

This statement is supported by the following signatories.


The statement highlights a number of trends:

1.  The internationalization of human rights in business law is being built on principles of piecemeal globalization. The essence of this approach in this case is built on complementary that in the aggregate produces a working system that may be seamless across national territories.

2.  The principle of complementary within approaches grounded in piecemeal globalization also complements important trends in the development of trade regimes.  Both the Chinese OBOR (here) and the new American approach (here).

3. What is requires is coordination among national efforts around the principles established in international organizations.  In effect, the move appears to create a "soft European Union" regime in which international organizations produce "directives" that are then transposed into the national law of the participating states.

4. The foundation of piecemeal globalization is a recognition that the basis for legal frameworks is grounded in principles of regulatory governance--that is that the legal framework ought to be built around the management of the rules within which markets function.  That produces a  blending of the UN Guiding Principles for Business and Human Rights 1st Pillar (state duty to protect human rights) with the 2nd Pillar (corporate responsibility to respect human rights) in ways that might strengthen both.

5. The "business case" arguments at the center of the statement highlight the germinal importance of economics rather than politics in the construction of global standards.  Normative and political principle acquires importance through its functional consequences.  Human rights is good precisely because it makes economic sense int he context of the markets based systems in which the global order is founded. This provides a powerful foundation for national-international linkages across public and private governance systems.  But it also changes the tenor of discourse in ways that may not be fully appreciated (discussed here).

6.  The approach has important implications for the Intergovernmental Working Group considering a Comprehensive Business and Human Rights Treaty.  It may well provide a necessary template (on the need for a template see here) for the framework elaboration of a treaty that might actually have some small chance of success. Piecemeal globalization of business and human rights obligations through coordinated national law may be the best way forward for those who place value on this project (for the case for a treaty e.g., here).


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