"If You Build It Will They Come?": The Norway Pension Fund Global Ethics Council's Field of Dreams--Considering the Council on Ethics Annual Report 2019

A Projectile Jurisprudence that Hits Its Mark?

The Norway Pension Fund Global is among the most influential projects of leveraging sovereign investment into a vehicle for the disciplining of business through the market interventions of a state (and in the name of international law with national characteristics), has just distributed its 2019 Report.  What has made it especially interesting to those heavily invested in the project of developing some sort of (conventionally) recognizable connection between public law (disciplined through a national administrative apparatus) and private law (disciplined through markets) has been the workings of an Ethics Council overseeing the development of investment strategies (and the baseline conduct expectations for an investment universe) structured around a set of Ethics Guidelines the administration of which is left to Norges Bank and its instrumentalities.  

The Ethics Council has just distributed its 2019 Report (Council on Ethics for the Norwegian Government Pension Fund Global: Annual Report 2019). It is worth serious study, especially for those seriously interested in the ways in which states can leverage authority within markets through investment activities around issues of human rights and sustainability. It continues to represent an interesting application of the principles of private governance through markets, and of the collapse of the string divide between the public and private functions of states and enterprises. More importantly, perhaps, it represents the ways that states have fractured their regulatory power, becoming at once once regulator and regulated. 

 Portions of the 2019 Ethics Council Annual Report follow below. along with my brief comments in which I suggest that the Ethics Council system ought to adopt a ratings based social credit system model if it is become more effective. 

The 2019 Report of the Ethics Council, however, also increasingly evidences the mounting challenges of the model developed for the Pension Fund Global.  After reading the 2019 Report, one must wonder whether indeed, the system is now reduced to little more than a Potemkin Village effort to appear to shape the discourse of corporate behavior through a very strong intervention in the rhetoric of corporate conduct and in this way to influence stakeholder choices. Beyond that, it is not clear how effective the mechanism is in fact in actually disciplining corporate behavior in specific classes of cases. The best case that may be made, perhaps, is one that sought to outline in earlier work: the only substantial value of the work of the Ethics Council within the framework of Pension Fund Global investing is to create a solid jurisprudence of investor obligation with respect to human rights and sustainability.  The 2019 Ethics Council Report notes that "The Council’s influence is probably based on a combination of the thoroughness of its investigations, the fact that its recommendations are published, the attention this creates due to the GPFG’s size, and the Council’s communications with the companies concerned during the assessment process." (2019 Report, p. 29). And again, as the quoted passage suggests, the Ethics Council then counts on the leveraging of its jurisprudence (legitimated through the value of its efforts) to project that jurisprudence into the cultures of business and into the public law based accountability systems of other states.  That assumes, of course, that this jurisprudence can be applied even by the Ethics Council with some consistency, a challenge apparent in its corruption cases and anything affecting  a Jewish presence in the lands between Sinai and Syria) will influence the public and private law systems of states and enterprises  seeking to incorporate human rights and sustainability into their operations. 

But the process of that production of projectile jurisprudence  ought to be frustrating.

The Council has not observed any material consequent change in the practices of around half the 85 companies with which the Council has engaged in dialogue. A recommendation to exclude was issued with respect to 25 of these. The others were already engaged in change processes that were driven either by the company itself or other actors by the time the Council contacted them.There are many reasons why companies show a lack of willingness to change. Some companies have little understanding of the issues being raised and are not interested in sharing information or engaging in dialogue. For others, the problem lies in their fundamental business idea.(2019 Report, p. 31).

And yet, as perhaps is the inevitable habit of those responsible for such structures, the tendency continues to be to blame the object of attempted regulation or behavior management, rather than to use disappointing data as an invitation for some greater introspection.  It may be time for the Ethics Council to take a long and hard look at itself within the structures and objectives of the Pension Fund Global Ethics Guidelines (using that as a normative baseline) and the way in which it approaches and understands its role, given the fundamental objectives of the system (e.g., change behaviors).

Let me suggest the current challenges embedded in the 2019 Report and then suggest at least one alternative approach that might be considered.

1.  The Current structure and operating style of the Ethics Council impedes attainment of the broader objectives of the Ethics Guidelines.  The Ethics Council is organized like a tribunal. And, indeed, its core function is to pass judgment (in the form of recommendations to those with the political authority to act (for reasons of politics, economics, policy, etc.). In this quasi-adjudicatory role they are bound by the Ethics Guidelines, specifically, and Norwegian law generally (and through Norwegian law to international law and norms to the extent the political authority permits).  But at the same time, the Ethics Council serves also in a prosecutorial capacity (they are responsible for developing the evidence on which they they will construct a judgment/recommendation), and an administrative capacity (they will work with enterprises, NGOs and others to articulate and counsel application of the broad principles of the Ethics Guidelines in specific instances--and note here I deliberately used the language of the OECD's National Contact Points, "whose main role is to further the effectiveness of the Guidelines by undertaking promotional activities, handling enquiries, and contributing to the resolution of issues that may arise from the alleged non-observance of the guidelines in specific instances." (here). Beyond the conflicts of functions--which appear to be fashionable in this context--it creates issues of policy and institutional coherence and always poses resource allocation issues.

2. The effectiveness of the Ethics Council's Mandate as a function of actually affecting change remains low.  The 2019 Report notes that the "Council estimates that around 30 per cent of these companies may have implemented improvements as a result of their dialogue with the Council." That suggests even more pointedly that the foremost value of the Ethic's Council's work is in the production of projectile jurisprudence.

3.  And yet, it is difficult to assess the value of the Ethic's Council's work with Respect to the projection of its jurisprudence for lack of metrics.As has become customary within the post-2011 UN Guiding Principles business and human rights community, narrative has assumed a pride of place in the "measurement" of attainment of goals, the principles of which are assumed to be completely compatible with each other in the universe of economic activity across cultures, political ideologies, and practices. Metrics, to the extent they are used are crude measures of relative performance whose robustness still lacks much testing, and whose construction is meant to aid strategic objectives.  And yet the compliance which is at the heart of the Ethics Guidelines does not appear to be well applied to the Ethics Council itself--at least with respect to its most important product.  Instead one is treated to lists (e.g., the list of excluded companies on pages 32.33 of the 2019 Report),  or to episodic measures that are meant to underline a strategically important point the Ethics Council seeks to advance.

4. What this suggests is that the Ethics Council's projectile jurisprudence is actually a means to another ends (one emphasized in pages 28-31 of the 2019 Report)--to produce a set of normative tools for recasting the fundamental narrative of economic activity. This is neither shock, nor is it revelatory.  The Ethics Council has been fairly transparent about this, but usually this core objective has been veiled in the legitimacy enhancing language of law, rules, and the majesty of democratic principles advancing  products of legal orders, to serve as a cover for the real work of social engineering to produce the "ideal enterprise" operating within the "ideal economic environment" overseen , no doubt by the "ideal state" within an "ideal global order" of which the Ethics Council and its intellectual classes will serve as a vanguard. This is also an ancient project within both liberal democratic and (especially) Marxist-Leninist states, with respect to which I have already written (See, e.g., Cuba's Caribbean Marxism (2018)). That is not a criticism, but a suggestion of the ways in which this impulse also exacerbates the contradictions of operation already suggested above.

5. If that is the case, however, then the much loved quasi juridical model based on the direct application of "law" to regulate conduct impedes rather than enhances the objective.   First the number of "cases" handled will always be rather small.  Because the scope of activity is small the direct effects of Ethics Council action will tend to be small as well. The leverage effect tends to reach other public bodies more effectively than private actors.  And yet it is to private activity that much of the work of the Ethics Council is directed.  At the same time the Ethics Council Secretariat has a long practice of gathering data.  True enough the data gathering is now targeted to the investigative and quasi judicial practices of the Ethics Council--but data is data and it can as easily be augmented and redirected to more globally effective uses.Indeed, the Ethics Council 2019 Report already goes to some lengths to describe its apparatus for data harvesting and analysis--grounded both in 3rd party contractors and on other resources (2019 Ethics Council Report, pp. 9-11).

6.  What may be required, then,  the transformation of the Ethics Guidelines system from a quasi judicial to a social credit system model. into a That will require, in turn, the  transformation of the Ethics Council from a quasi-judicial regulatory agency also in charge of its fact intensive investigations, to the nexus institution of a global business and human rights social credit system.  That system would be grounded on the data intensive investigations of the Council, but then subjected to an analytics that would produce ratings based on the quantum of conformity of firm practices to the Ethics Guidelines.  That analysis could then be reduced to a score of relative compliance among all firms (divided by sector, size, or any combination of relevant factors).  Lastly those scores can then be used to develop a system of punishments and rewards around the current practices of mediation, exclusion, or observation.

7. To be effective, such a social credit system will have to be transparent, and coupled with webs of rewards and punishments under the systems of relevant domestic legal orders. Social credit systems, as a means of changing societal narratives and as a means of regulating behavior require a large measure of transparency in order to work.  Secret systems do little to change core behaviors and expectations.  To that extent, the culture of the Ethics Council--academic, elitist, and aligned with the political classes on which it is dependent and from which it acquires it authority--will have to be broadened significantly. More importantly, though, the systems of punishments and rewards that are dependent on Ethics Council Social Credit ratings will have to be broadened as well.  Perhaps they might include impediments to acquiring tax benefits, licenses to operate, or government investigations. What becomes important, however, is the alignment of data, analytics and consequences that can be normalized as expectations among stakeholders and that can be tied closely to business risk related consequences. In the absence of these changes, one can project to infinity the iterations of reports like the 2019 Ethics Council Report, and its project of projectile jurisprudence on which it is structured will produce a trajectory of ever so slowly diminishing influence, except as an unrealized ideal.