Responsible Business Conduct & Globalisation
A look back at the OECD Forum 2017 session
Globalisation has altered the way we do business dramatically. The rise of global value chains (GVCs) has scattered labour and production processes, complicating chains of responsibility and monitoring. As businesses grow beyond their home jurisdictions, the question of the burden of responsibility has become increasingly foggy -- and even more so for the secondary impacts of business practices such as those on the environment or persons indirectly employed somewhere along the supply chain.
Some of the data in terms of social practices are very worrying: approximately 168 million child workers and 50 million people are working in conditions of slave labour. More broadly, 60% of today’s 3 billion workers do not have a proper employment contract. As Mathilde Mesnard, Deputy Director of Financial and Enterprise Affairs for the OECD stated, “The fundamental and main problem of globalisation is that the economic playing field is not level”.
Today, supply chains spanning dozens of countries are a common feature of large and small businesses and they account for 70%-80% of global wealth. Global regulatory frameworks have not kept pace with trends in globalisation, creating a governance gap with regard to the conduct of multinational enterprises. Rule of law remains weak in many countries that are significant players in global supply chains. Substantial uncertainty continues to exist in the context of litigation of cross-border harm caused by corporate conduct. Fragmentation of global supply chains, sourcing flexibility and the diffusion of different production processes have also meant reduced transparency as well as less stable and shorter-term business relationships between buyers and suppliers.
This session explored how governments, companies and civil society can work together to promote responsible business conduct (RBC) and inclusive growth in an increasingly interconnected world. We are still playing catch-up with globalisation in many ways, most obviously in terms of continued stakeholder and government silos. We need -- and populations are demanding -- a paradigm shift that allows for increased policy coherence across government sectors. Finland and the Netherlands have, for example, combined their aid and trade portfolios, an approach that neither dilutes policy aspects nor separates out RBC from the Sustainable Development Goals. Every speaker emphasised that the time is ripe for governments, businesses, trade unions and multilateral institutions to push for increased transparency and stronger multilateral collaboration and take advantage of opportunities in the near future that will provide springboards for doing so.
Given the current backlash against globalisation, it is more important than ever for businesses to follow the most responsible business practices. Social policy, human rights, working conditions, environmental and tax practices should be monitored in all their global operations and the same standards set both at home and abroad. Cathy Feingold, Director of the International Department at the American Federation of Labor-Congress of Industrial Organizations (AFL-CIO), stated, “I think we are entering a new moment…coming from the United States and seeing the latest election I think what we all need to hear is that people are asking, ‘How do these global rules work for me?’ When we are talking about fair trade we need a new model that works and that responds to what is happening in elections and with how people are voting, and they are saying, ‘These rules are not working for us’”.
We need to keep developing global standards and instruments that will allow for fairer globalisation and continue to expand the coverage of current standards. But real progress requires moving from voluntary to binding mechanisms, including establishing strong reporting directives that will allow civil society and social media -- to the extent that they are not silenced -– to put pressure on companies to act responsibly.
Instruments such as the OECD’s Guidelines for Multinational Enterprises (MNEs) provide norms of international business conduct and have been important tools for filling these regulatory gaps. The Guidelines set out recommendations from governments to businesses on what they expect in terms of RBC in areas ranging from labour and human rights to environment and corruption.
Since their first adoption in 1976, the Guidelines have continuously been adjusted to global economic changes while advancing the responsibility of business towards society. To keep up with the rise of GVCs and enterprises restructuring their operations internationally (through outsourcing and offshoring of activities), the Guidelines were further strengthened in 2011. Businesses are now expected to act responsibly not only in the context of their own operations but throughout their business relationships. They should additionally conduct due diligence to manage environmental and social risks throughout their supply chains.
The Guidelines are equipped with a unique problem-solving mechanism known as National Contact Points (NCPs). This grievance procedure provides an opportunity to civil society, trade unions and other parties to submit complaints in cases of adverse impacts from business operations. Adhering countries commit to establishing NCPs, which also allow reach beyond MNE home countries to cover business conduct in non-OECD economies having acceded to the Guidelines. To date, cases handled by NCPs (known as ‘specific instances’) have covered grievances in over 100 countries and territories, with 38 being closed in 2016 alone: and businesses are paying attention. Mathilde Mesnard explained that, “Being the target of a specific instance has triggered a fundamental change in the way the companies deal with these responsible business issues, how they become proactive instead of reactive…it changes the behaviour of companies”.
The tax practices of multinational enterprises have also come under the spotlight in recent years. The OECD has led significant efforts over the last five years to tackle base erosion and profit shifting (BEPS). The BEPS measures increase transparency by closing loopholes and addressing mismatches in both the international tax rules and tax systems so that, where economic activity and value creation take place, profits are taxed. “When companies evade taxes we risk…damaging our ability to finance the public sector, such as health care, education, infrastructure and so on”, Karsten Lauritzen, the Danish Minister for Taxation stressed; the OECD conservatively estimates that BEPS has eroded government revenues from corporate tax by around USD 100-240 billion globally per year. The OECD Principles of Corporate Governance support this agenda by recommending that enterprises include tax as part of their oversight and risk management systems, and the OECD Guidelines for Multinational Enterprises call on enterprises to, “comply with both the letter and spirit of the tax laws and regulations of the countries in which they operate”.
RBC therefore has two main facets. First, businesses should make a positive contribution to economic, environmental and social progress with a view to achieving sustainable development. Second, they should avoid and address adverse impacts both through their own activities and those directly linked to their operations, products or services by a business relationship. Companies, governments and civil society must work together to promote RBC in increasingly globalised business practices, while recognising the opportunities for businesses to act as a positive force for inclusive and sustainable growth. As Lilliane Ploumen, Minister for Foreign Trade and Development Cooperation for the Netherlands summarised, “We do want growth but we want the growth to be inclusive; we want trade but we want trade for all; we want development but we want that development to happen in partnership”.
Got a few more minutes?
- Conny Czymoch, Journalist @cc_communicator
- Karsten Lauritzen, Minister for Taxation, Denmark
- Mathilde Mesnard, Deputy Director, Financial and Enterprise Affairs, OECD @mathildemesnard
- Cesar Cunha Campos, Executive Director, Fundação Getulio Vargas, Brazil @FGVBrazil
- Cathy Feingold, Director, International Department, American Federation of Labor-Congress of Industrial Organizations (AFL-CIO) @AFLCIOGlobal
- Annemarie Muntz, Director Group Public Affairs, Randstad; President, European Confederation of Private Employment Agencies (Eurociett) @ANNEMARIEMUNTZ
- Kai Mykkänen, Minister for Trade and Development, Finland
- Lilianne Ploumen, Minister for Foreign Trade and Development Cooperation, Netherlands