(Pix Credit HERE)
This seems to be the era of mandatory due diligence, especially for Europe. Once a technical function attached to transactions, and then bound up with increasingly complex disclosures for the construction of transparent and fair markets for securities, due diligence exploded onto the field of responsible business conduct with the endorsement of the UN Guiding Principles for Business and Human Rights in 2011.It proved to be a felicitous convergence of trends--on the one hand the trend toward the elaboration of compliance-accountability based cultures of administrative organs and on the other the growing consensus about the utility of enterprises (or their inter linkages) as the royal road to filling the governance gaps for emerging strong global production chains that could not be effectively managed by any one state, clusters of states, or by the instrumentalities of public international organizations. More importantly, it advanced another notion--the possibility of domesticating international law and projecting that domestication outside of the national territory. It is a model already well established in the normative framework of European sovereign wealth fund operations (here) .This is meant to be an acceptable extraterritorialization because it does no more than establish mechanisms (including through the jurisdictional authority of enterprises) for the enforcement of international law (and norms) outside the national territory through control of enterprises operating within the national territory.
Combined, this triumph of public administrative cultures of compliance-accountability exported onto the operational cultures of business enterprises (public and private) with a technology fueled possibilities of systems of surveillance and decision making framed by ideologies of due diligence, produced movements for the legalization of both. In effect, the combination of both trends admitted the possibility of delegating what had otherwise been public responsibilities overseen by traditional administrate organs directly to enterprises (and then to have those enterprises administer these obligations directly through the creation of their own sub-administrative regulations and supporting bureaucracies) and of structuring that delegation around accountability and compliance systems that permitted the state to both broaden the range of responsibility beyond national law and to oversee this privatized agency through the prism of its own domestic legal order.
While the initial process of legalization will prove to be quite messy as states, international organizations, and others enact overlapping and possibly conflicting legal schemes that impose one form or another of mandatory due diligence requirements on or through enterprises, it is clear that this approach is here to stay--at least for the medium term. It is in this context that one might usefully consider the draft Dutch Bill for Responsible and Sustainable International Business Conduct (unofficial MVO Platform translation) introduced for consideration by four Dutch political parties.
Joseph Wilde-Ramsing (Centre for Research on Multinational Corporations (SOMO)), Manon Wolfkamp (due diligence legislation for the MVO Platform) and David Ollivier de Leth (project officer for the MVO Platform) have recently produced a quite interesting short analysis of the draft bill (which is reposed below) along with the text of the draft and my on brief reflections.
1. Some of the definitions at the opening of the measure are quite telling about the scope and aims of the draft. At the same time they suggest the contours around which enterprise strategic behaviors may be constructed. Two are worth highlighting, though all raise interesting issues.
First, the definition of subsidiary is broadened to include control relationships (a concept that will invite judicial refinement). It also includes subsidiaries of subsidiaries. One might be tempted then to more complex networks of relationships so that the operations that might generate the greatest potential for negative accountability will far beyond the reach of the statutory definition.
Second, the definition of "due diligence is quite interesting. It includes only continuous monitoring touching on "actual and potential negative impacts of their activities on human rights, labour rights and the environment in countries outside the Netherlands." (§1.1(b)(2)(c). It then ties that obligation to the OECD Guidelines for Multinational Enterprises which is to that extent at least incorporated into the domestic law of the Netherlands, perhaps.
Interestingly "negative impacts" cetral to the statutory scheme, are not defined with any precision.
2. Section 1.2(1) (a) and (b) appears to impose (again only for activities outside of metropolitan Netherlands, that is within the sovereign jurisdiction of other states) a tort standard grounded in a duty to take action on the basis of a legally sufficient investigation. But then in §1.2(1(c), it introduces "sufficiently limited" standard. This appears to imply that there is a damage baseline exists against which a decision to proceed understanding that compensable damage might occur. But that baseline is undefined. This ten produces something of a contingent tort standard investing the public administrator with some substantial discretion in its operationalization through administrative judgment. These are, of course, modified by the provisions of §§2.3 and 2.4. These, in contrast to the more general provision of §1.2 suggest that even the least substantial negative effect would impose on the enterprise a duty to cease the damage causing activity. This is reinforced by the language of § 2.8 (remediation). Yet that may not be right and it is unclear yet how the provisions of ¶¶ 1.2, 2.3, 2.4, and 2.8 would actually work to develop operational rules for the everyday decision making of enterprises--outside of the Netherlands. One suspects that a "common law" of de minimus exceptions will eventually develop, but there is no assurance about how Dutch ministers--who come and go with the mood of the leadership and the electorate, will respond. And there is certainly no assurance of coherence or continuity.
3. The draft Act applies only to the largest companies that are either registered in the Netherlands or certain of its territories, or that do business in the Netherlands (§1.3) but only with respect to "activities outside the Netherlands" (§2.1(1)(a). In addition the obligations of the draft act apply only if the enterprise meets certain size and operational criteria relating to net worth, net revenues and size of labor pool (§2.1(1)(b)).
4. The entire enterprise of managing this scheme of mandatory due diligence appears to be vested in a "Regulator" (§3.1). Effectively it appears to reconstitute a qualifying enterprise and its value chain (at least down to the level recognized in the draft act) as an operational sub-unit of the Dutch administrative state (§§3.1(3)-(5). The object of enterprise administration is compliance--to ensure that its operations do not cause adverse of negative impacts with respect to identified activities. In that effort, the statute effectively mandates that they "report" to the "Regulator" who may then discipline enterprises who fail in their compliance (§3.3).
5. Mandatory human rights due diligence approaches, like the Dutch variant, tends to ignore the polycentric governance implications of its structures. In particular, it tends to assume away the possible incompatibility of its standards with those of the territories in which it is meant to be applied. This is not carelessness. The idea, perhaps, is that since the Dutch law merely domesticates international standards, and since international standards ought to be applied everywhere, there is no reason to suggest that there will be substantial incompatibility in governance expectations anywhere on earth. The fundamental outlook reflects an emerging international extraterritoriality principle that appears to suggest that every state ought to have the right to apply international law (and norms) globally, at least to the extent of their ability to control those subject to that "law" and those norms. Differences, if any might then be based on the peculiarities of local process and the application of administrative discretion. The idea is seductive, of course. Section 6.1 of the MEMORIE VAN TOELICHTING (No. 3) (Explanatory Statement) explains:
According to legal scientists, companies have an independent responsibility under the UNGPs to prevent their activities from adversely affecting the human rights of third parties and to remedy any violations. This responsibility applies regardless of where the activities take place and the local legal context; it also extends to adverse human rights impacts directly associated with the company's activities, products or services through business relationships. In the opinion of the initiators, a statutory duty of care is therefore also appropriate for that responsibility.
Here one encounters the notion that the anarchy of polycentric (multiple simultaneous surce) governance can be ordered by reference to a central point of convergence (the apex authority of international "law" and norms).
6. Nevertheless, that conceit of international extraterritoriality is belied both by the forms of Dutch draft and the realities of its administration. First, one ought to wonder why it is that the provisions of mandatory human rights due diligence apply only to the outward (non-Dutch) activities of enterprises. If the Dutch are already subject to those standards then there should be no difference on the expression of responsibility for ordering economic activity by enterprises subject to this law in their operations in Amsterdam or in Abuja. And yet the way the law is written a difference is implied. Second, it is very hard to square the exercise of Dutch ministerial guidance with notions of neutral internationalism. Indeed, one ought to expect that the apex fiduciary obligation of a Dutch minister would be to advance the interests of the Netherlands in all matters as such may be articulated by the political party in power and subject to the constraints of the Netherlands constitutional order and cultural aspirations. And yet there is no reason why those (quite laudable) objectives ought to permeate the way in which mandatory human rights due diligence is then operationalized well away from the Dutch metropolis. It will be interesting to see whether blocking legislation is eventually considered by states on the wrong end of this regulatory track.
7. No discussion of the Dutch draft Act is complete without noting the potentially transformative possibilities of its “dynamic standard setting.” Section 6.3 of the MEMORIE VAN TOELICHTING (No. 3) (Explanatory Statement) explains:
6.3 Division of tasks and powers. The focus of supervision and enforcement lies with the supervisor. The supervisor has both a positive and a repressive supervisory task with regard to the supervision of compliance with the law. Through the combination of positive and repressive supervision, the learning capacity of companies is addressed and they are given the opportunity to improve if the supervisor finds that the law is not being complied with. The supervisor takes into account the context of the company (situational supervision) and applies dynamic standards (further elaboration of the obligations under this law on the basis of existing guidelines and good practices of other companies).
The object appears to be t grant the responsible minister broad supervisoryauthority constrained only by the Supervisory Strategy (¶3.1(3)-(4)) that must be developed and applied. Yet dynamic supervision suggests a further aignment between the ministry and the subject of its supervision. Supervised closely enough, the enterprise (at least with respect to relevant overseas activity) might be subsumed within the cultures of themanagement of Dutch administratve organs. At its limits, it suggests the instrumentalizatin of the enterprise as an organ of state through which Dutch interests are projected outward. supervisory
8. The official documents in Dutch are available here.
J. Wilde-Ramsing, M. Wolfkamp and D. Ollivier de Leth “The Next Step for Corporate Accountability in the Netherlands: The New Bill for Responsible and Sustainable International Business Conduct”, NOVA BHRE Blog (18 March 2021) <https://novabhre.novalaw.unl.pt/new-bill-for-responsible-sustainable-international-business-conduct-netherlands/> follows.
About the authors:
Joseph Wilde-Ramsing is Senior Researcher at the Amsterdam-based Centre for Research on Multinational Corporations (SOMO) and Coordinator of the OECD Watch network. Joseph researches the impacts of companies on people and planet and supports communities and workers in their fight for justice and respect for human rights. Joseph also serves as an Independent Advisor to the Social and Economic Council of the Netherlands. He holds a Bachelor’s degree from the University of North Carolina, a Master’s from Tulane University, and a Ph.D. in political science and governance from the University of Twente.
Manon Wolfkamp is senior public affairs professional, specialized in responsible business conduct. For the MVO Platform she leads the work on broad due diligence legislation. Manon holds Master degrees from New York University (Broadcast Journalism) and the University of Groningen (International Relations and History).
David Ollivier de Leth works as a project officer for the MVO Platform, a network of civil society organisations and trade unions that work on corporate accountability in the Netherlands. He also works for SOMO as a researcher in the Corporate Research team.
These are exciting times for those working on corporate justice in the Netherlands. In January, the Dutch court of appeal ruled Shell Nigeria is liable for damages Nigerian farmers suffered due to oil spills and must pay them compensation. In March, after reports by The Guardian and Amnesty International on the thousands of migrant workers that lost their lives for the construction of football stadiums for the 2022 FIFA World Cup, the Dutch company that was supposed to supply the grass for the football pitches in these stadiums announced it would cancel this order, stating: “The contract was worth millions, but sometimes there are things that are more important than money.” In the same week, four political parties submitted a bill on human rights and environmental due diligence in Dutch parliament, while the European Parliament voted in favour of a proposal for a EU Directive on due diligence.
This Dutch Bill for Responsible and Sustainable International Business Conduct follows the Child Labour Due Diligence Act that was adopted by the Dutch Parliament in 2019 but has not entered into force yet. Back then, several parties had already argued that a broad due diligence law covering all human rights and environmental standards would align better with the existing international normative framework for responsible business conduct, most notably the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises. In cooperation with the MVO Platform, the Dutch network of civil society organisations and trade unions in the field of corporate accountability, several major political parties began developing such broad legislation. After several years of preparation and consultation, the law was finally submitted in parliament by four political parties (Labour, Greens, Socialists and the Christian Union) in March 2021.
The law imposes a duty of care to prevent negative impacts on human rights and the environment – including the climate – on all companies in all economic sectors – including the financial sector – that are registered in the Netherlands or sell products or services on the Dutch market. This duty of care also applies to negative impacts in companies’ global value chains, regardless of tier. The bill’s explanatory note explicitly states that this duty applies “regardless of where the activities take place and the local legal context” and also covers “adverse human rights impacts that are directly linked to the company’s activities, products or services through business relationships”.
The bill furthermore imposes a due diligence obligation on all companies that exceed at least two of three threshold criteria: an employee base of at least 250 employees, a total balance sheet value of more than 20 million euros, and a net turnover of more than 40 million euros. This means the bill also applies to so-called ‘letterbox companies’, such as large multinational enterprises that are headquartered in the Netherlands only on paper. This due diligence obligation closely follows the six steps of due diligence as prescribed by the OECD Guidelines and the OECD Due Diligence Guidance for Responsible Business Conduct. The bill requires companies to develop and implement action plans to address violations of human rights and environmental standards in their value chains and to monitor and publicly report on the execution of these action plans. The bill also makes clear that companies are obliged to provide remedy to affected rights-holders and explicitly states that failure to do so is considered violation of the law.
The bill includes administrative, civil and criminal liability and enforcement. The main enforcement mechanism consists of an independent public regulator that can issue binding instructions and financial sanctions and make such decisions public. The regulator can also choose to proactively provide companies with more “positive” guidance on their due diligence obligations. By combining “positive” and more punitive enforcement, the bill aims to give companies the opportunity to improve their behaviour if they are found to be in breach of the law and to use their abilities to learn and develop where relevant. In doing so, the regulator takes into account the context in which a company operates (e.g. its position in the value chain, leverage, size and the specific risks of negative impacts). The regulator also makes use of so-called “dynamic standard setting”, which means it can further define the due diligence obligations laid down in the bill based on existing guidance documents and “good practices” by other companies. If the regulator imposes financial sanctions on a company twice within five years, a third violation of the law will be considered a criminal offence by the company or the responsible executive or board member, punishable by fines and jail time. Under Dutch civil code, stakeholders such as NGOs and labour unions have standing to file claims against companies in violation of the duty of care or the due diligence obligation in Dutch civil court.
The bill proposes replacing the Child Labour Due Diligence Act, for which the Dutch government is currently developing implementation orders. While negotiations for the next Dutch government are now starting following the national elections on March 17th, the Dutch Foreign Ministry is pushing for the adoption of a directive on responsible business conduct at the European Union level. At the same time, however, the ministry is also preparing “building blocks” for national due diligence legislation, which are expected to become public this summer. The next steps regarding the Bill for Responsible and Sustainable International Business Conduct very much depend on the outcome of government coalition agreements following the elections. A broad movement of civil society organisations, trade unions, progressive businesses, religious organisations and academics has been campaigning for adoption of the bill, and will continue doing so in the coming months.