Perspectives in Responsible Sourcing

The Day I Spent in Jail

     Ralitsa and I knew it would be a special audit.  CSCC had never done a prison audit before, so we scoured the web for laws and guidelines on prison labor, looking to the ILO and European, as well as Hungarian, standards. What we didn’t count on was just how different our perspective would be from that of the factory management.  Because of this difference, we almost ended up spending the night in prison!
     Our interpreter, Tamas, facilitated introductions to factory management, and the day began in a promising manner.  The factory contact had set aside documents for us to review, and we discussed how to interview the prisoners in a way that would ensure our safety while still allowing for confidentiality.  The factory seemed to be well prepared for the audit.  However, we were soon to find that due to the radically different interests of the assessment parties, this was not the case.
     The factory was located in the prison and used both civilian workers and prisoners in about equal proportions, so Ralitsa asked to interview half civilian and half prison workers. Although the factory manager initially agreed to allow the prisoner interviews, he changed his mind, citing a Hungarian law that requires permission from the national prison authority for such an undertaking.  He also sought to rely on the legal distinction in work status at the facility.  The civilian workers, he said, were employed directly by the factory.  The prison workers were “employees” of the prison service, effectively contracted by the factory, and were subject therefore to prison service rules, not the Hungarian labor laws covering the civilian employees.
     This complication was only one obstacle we faced.  It turned out that the documentation provided was grossly inadequate because the prisoner information was allegedly private.  The management used the Hungarian Data Privacy Act as a reason not to show us the requested civilian data, even though Ralitsa had a copy of the Act and pointed to the section allowing us to see the data.  When Ralitsa picked employees to be interviewed, the factory manager initially appeared to ignore her choices and picked other employees.  And so the day continued in this manner, obstacle after obstacle, refusal after refusal, until at 5pm, after completing as much of the assessment as we were allowed to, Ralitsa decided to call the closing meeting.    
     Although they agreed with most of the assessment observations, the factory managers kept saying that we were not accounting for this “special situation,” that our audit tool was ill-equipped to deal with the complexities of a factory in a prison.  We insisted it was not ok that there was no emergency evacuation drill for the prisoners.  But we can’t show them how to escape, they pointed out.  Well, couldn’t they reach some compromise, we asked?  After all, they’re not just prisoners, they’re human beings too.  At that point, the factory management said, “we will not reach an agreement here – we are coming at this from perspectives too different to reconcile.” 
     And there it was.  We saw the prisoners as human beings, murderers and thieves though they may be.  Factory management saw the prisoners exclusively as a threat to human beings.  All of the legal and social theory I have studied was of no use.  We could not reach a practical solution to bridge our perspectives.

     It is interesting to note that while the prison audit was a new experience, some of the legal issues that arose during the audit are fairly standard.  First, the prison director’s assertion that the prisoners were contracted from another entity (if not an employer) is a common method employers use to get around employment standards they do not want to uphold.  In the UK (among many other countries), for instance, many factory managers hire agency workers and then fail to maintain payroll information for these workers on the ground that they are employees of the agency, not the factory.  Second, like the prison director, these managers claim that for data privacy reasons, they are not allowed to maintain the workers’ information at the factory – it is doubtful that this is the case.  Finally, in both instances, one can see how easy it is to manipulate the law, especially in murky areas that the laws were not designed to target.  In both cases, it is highly unlikely that legislation was intended to cover third party social auditors’ access to employee information, either civilian or prisoner.  This omission leaves a great deal of room for ambiguity and interpretation.  Therefore, while the motivations and excuses for evading legal standards will differ in given situations, the means of evasion are often common.

If you have comments or questions about this piece, please contact Lara Blecher at lblecher@intlcompliance.com

Spheres of Influence

John Ruggie, a Harvard professor, has been exploring the relationship between human rights and business for just over a year as the UN Secretary General’s special representative for Business and Human Rights.  In a recent interview with the Financial Express, Ruggie spoke about the latest focus of his work – what is the duty of the state to protect against corporate abuse?

From a business perspective, this focus on state obligation in upholding human rights is most likely a relief.  One of the main corporate criticisms of the now failed UN Norms for Transnational Corporations was that the Norms found too large a role in international law for businesses to ensure human rights are being upheld. 

More specifically, Ruggie points out in his report, The Evolving International Agenda, that the role defined for corporations under the Norms was essentially the same as that defined for States, an overlap that leads to much confusion, among other things.  He goes on to conclude in the Financial Express interview that it is “hard to contend that corporations have direct legal obligations under international human rights law.”

However, he also found “a growing potential for companies to be held liable for international crimes… under domestic law but reflecting international standards of individual responsibility.”  A current example of this latter case is Chiquita's liability not under international law but under Colombian law for contracting with a right-wing militia that committed internationally-recognized human rights abuses.

Part of the goal for Ruggie’s now extended mandate is to more clearly define the idea of a corporate sphere of influence in international law.  He believes that one means to achieving this goal is to “further clarify and progressively codify the duties of states to protect human rights against corporate violations” on both an individual state and multi-state level.

In a White Paper issued in April of this year, the American Bar Association (ABA) took a stab at roughly defining the corporate sphere of influence in corporate social responsibility (CSR) by saying that businesses should integrate “broader societal concerns into business strategy and business operations in ways that enhance reputation and sustainable business prospects.”  The ABA suggests that some ideas for embracing this approach include adopting relevant international conventions and industry best practices.

With regard to state responsibility, it says laws should be a minimum jumping off point for CSR but that, “local laws should not regulate corporate social behavior or impose exactions or taxes to enforce policies rooted more in political considerations and pet economic theories, than in the protection of social welfare and individual rights.”  The ABA proposes that the judiciary will play a role in resolving the jurisdictional no-man’s- land between corporate and governmental obligations in the area of CSR.

The ABA is coming at the dilemma more from the perspective of how it (as a group of lawyers rather than nation-states) can help to delineate the respective roles of corporations and governments, and with a focus on CSR in particular rather than human rights more generally.  Still, there is a fair amount of overlap between the ABA’s orientation and Ruggie’s.  Both are attempting to clarify the roles of states and corporations with regard to upholding social goals.  However, as a broad policy statement the ABA position leaves lots of gaps in the specifics of the sphere of influence framework.  For example, it does not elaborate on which corporate human rights practices should be legalized and which ones should remain voluntary.  It will be interesting to see if Ruggie can meet his goal and fill in some of those specifics.

If you have questions or comments on this blog, please contact me at: lblecher@intlcompliance.com

Alien Tort Claim Act Case Regarding Corporate Liability Goes to Trial for First Time

On July 27, 2007, the Federal District Court in Birmingham, AL found that Drummond Corporation was not liable under the Alien Tort Claims Act (ATCA) for the deaths of three Colombian union leaders. The families of the slain men had alleged that Drummond’s connection to Colombian paramilitary groups contributed to the men’s deaths, but the Court found an insufficient link.  Terry Collingsworth of the International Labor Rights Fund, the plaintiffs’ lawyer, said that there will be a “swift” appeal of the verdict. (1)

The notable element of this case is that it is the first one regarding corporate complicity under the ATCA to make it to trial – all of the others have been settled.  The settlements have meant that, as yet, there are no clear legal parameters for the scope of the ATCA application to corporate complicity.  The three statutory criteria for invoking the ATCA are that (1) the claim be brought by an alien; (2) that the alleged event be a tort only; and (3) that the event be a violation of international law. (2)

Although the Drummond case is the first ATCA case pertaining to corporate liability to reach trial, the US Supreme Court in its 2004 Sosa ruling acknowledged, first, that the ATCA can be used beyond its initial purpose of (roughly) prosecuting pirates, and second, that “actionable violations under the ATCA must ‘rest on a norm of international character accepted by the civilized world.’” (3)  It also stipulated a certain amount of specificity in acceptable claims. (4) 

The Sosa ruling helps to define the scope a bit.  In international human rights law, there is a concept called “jus cogens.”  Basically, this term refers to norms that are universally accepted.  It sounds like the Court might be saying that only violations of jus cogens status qualify as causes of action under the ATCA.  The problem if this is the case is that there aren’t many of these norms, and in order to invoke them violations must be extremely severe.  Some examples of universally accepted violations would be genocide and crimes against humanity.  Slavery is also a universally recognized violation of international law, and it is possible that forced labor now qualifies as a “modern form” of slave labor. (5)  This threshold means that some human rights and labor violations either might not be sufficiently severe to qualify as causes of action under the ATCA or that the scope of the international law will have to be interpreted to include a wider scope of violations.

Another area that needs clarification under the ATCA is the nature of the link between a company and perpetrators necessary to establish corporate liability.  In this case, the Court held the link between Drummond and the paramilitary force was insufficient to hold Drummond liable, even though the plaintiffs complained of a well-known link between the company and the paramilitaries. (6)  Liability could be based on a wide range of relationships between the parties, from involvement or support to aiding and abetting a group generally or aiding and abetting a specific act.  For example, UK terrorism laws require a very loose link between an individual and a terrorist organization in order to hold the individual liable under terrorism legislation.  In contrast, it is looking like a company must have “aided and abetted” the relevant party in conducting the particular act in question in order to incur liability. (7)  If this threshold is in fact the standard, one wonders if it is correct or whether it is too high.

So at present, a significant problem with setting parameters for the ATCA is that we must wait for court rulings to define them.  A further problem with relying on jus cogens as the basis for ATCA causes of action is that it usually takes many years for new standards to qualify in this category.  A third problem is the very high threshold for corporate liability.  On the upside, the verdict probably won’t further limit the applicability of the ATCA – the ruling was made on the facts. (8)  It does show, though, that the evolution of alien tort claims under the ATCA is likely to move at less than a snail’s pace.

1.  New York Times, “Alabama Company is Exonerated in Murders at Colombian Mine,” 7/27/07
2.  Littler Mendelson, “Corporate Liability for Human Rights Abuses Goes on Trial,” 7/23/07
3.  Ibid.
4.  Ibid.
5.  Ibid.
6.  Washington Post, “U.S. Firm Cleared in Deaths of 3 Colombians; Coal Operator Was Accused of Hiring Hit Men to Kill Union Leaders at Its Mine, “ 7/27/07
7.  Littler Mendelson, “Corporate Liability for Human Rights Abuses Goes on Trial,” 7/23/07
8.  New York Times, “Alabama Company is Exonerated in Murders at Colombian Mine,” 7/27/07

Bridging the Gap between Voluntary and Legal: Indonesia's New CSR Law

Indonesia has further muddied the waters regarding whether CSR is a legal or a purely voluntary initiative.  On July 20, the country incorporated a CSR requirement into its company law.  CSR Asia issued a critique of the law in its latest newsletter, and perhaps predictably, there are many concerns. 

The first concern is with coverage.  The requirement applies only to companies “involved in ‘the exploitation of natural resources,’” which evidently excludes the financial sector.  The author points out that this exclusion is problematic because the financial sector plays a pivotal role in facilitating CSR.  She suggests that this omission indicates the “law is not about CSR but is simply mandating philanthropy.” 

The second concern is functional.  The law is so general that it is unclear how it will be implemented.  For instance, the author says we will have to wait for further regulations before we know what definitions of CSR and natural resources the law espouses, how it will be implemented, and to whom it applies exactly.

The final concern the author refers to is the possibility that the measure will act as or be seen as a CSR tax that could deter foreign investment.  In other words, according to an Indonesian Business Links statement, “This is similar to additional tax… that is levied from the net profit of a limited liability company.” 

Has Indonesia got it right, the author asks?  She suggests that we won’t know until the regulations come out, but she thinks this law is “part of a global trend that governments are looking to legislate for CSR.”  I’m not sure I agree with her latter assertion.  The EU has said pretty firmly that CSR should remain a voluntary initiative, so there shouldn’t be any imminent EU legislation in this area. 

Second, although the U.S. proposed anti-sweatshop legislation, it does not appear remotely likely to pass, and if it did, it would serve protectionist purposes far more than CSR purposes.  So what might appear to be CSR legislation is sometimes, in effect, something completely different.

Finally, as the article points out, countries like France and Malaysia have CSR reporting legislation.  Moreover, the UK has ratified a corporate homicide bill that would make UK businesses more liable and accountable for accidents at work.  However, these pieces of legislation are limited to single legal issues, respectively, pensions law and criminal and tort law; they do not address CSR in general.  The Indonesian law seems to be more concept-based, targeting CSR as a whole.  If there is the kind of trend the author suggests, it is far more limited in scope than the Indonesian concept-based approach.

It will be interesting to see how the Indonesian CSR law pans out, but there are a lot of contextual and substantive reasons to be skeptical of its effect.  Perhaps it greatest contribution will be symbolic, closing the gap between legal and voluntary in the realm of CSR.

Should We Bother With Living Wages?

What is a living wage?  Both companies and activists would love to know.  Living wages remain a highly contentious issue, but as labor rights gain increasing importance in the public eye, there is growing interest on the part of NGOs and companies alike to hammer out a way to determine them.  A number of methodologies exist – Novartis has been working on this area for years, Ruth Rosenbaum of CREA has a credible system, SA 8000 has provided members with equations they can use for this purpose – but no methodology has been accepted as definitive. 

The reasons for this lack of consensus might be as much political as they are technical, yet it is hard to overlook or dismiss the technical complications, even with the politics involved.  For example, say you are able to come up with a reasonable sounding wage for a country.  Is it sufficiently accurate for the whole country, or is it regional?  If the latter, how big is the region to which it might apply?  And how long is it good for, particularly if the country you’re interested in is subject to hyper-inflation or unusual economic trends?  These are no small questions, and attempting to address them implies lengthy, costly and perpetual analysis.  So is it really worth going this route when we have a far better method of determining wages in the form of collective bargaining agreements (CBAs)?

Critics will argue that setting wages by CBAs will not render a living wage, but something higher.  This outcome is possible, but given that there is no accepted definition of a living wage, it is hard to verify.  For instance, most businesses will argue that a living wage constitutes the most basic goods and services workers will need, plus some discretionary income; whereas, worker advocates will usually argue that things such as entertainment, adequate leisure time, and the like, should be accounted for.  Both of these concepts capture a credible idea of what a living wage is, but neither prevails in terms of acceptance, and the wage amounts resulting from calculations using each concept are likely to be radically different.

There are two main benefits to dealing with wages in CBAs: (1) they are by nature multi-stakeholder tools; and (2) they establish a sustainable mechanism for wage determination.  With regard to the first point, employers have no real grounds to complain that wages would be set too high under these agreements as they or their representatives would participate in negotiating the wages.  It is true that employees would have greater power in the negotiations than they currently do, but they should.  In fact, depending on the structure of collective bargaining, employers might find empowered workers more a positive than a negative.  On the second point, a CBA provides a mechanism through which the people most affected can determine when their wages need to be reviewed, and there is no question of a wage being relevant only to a particular region or type of industry.  These factors are automatically accounted for in the collective bargaining process.  There is potentially a further benefit to promoting CBAs as CSR tools: they often make specific provisions for most issues covered in codes of conduct, including hours of work, disciplinary procedures, health and safety standards, and so on.  In other words, the benefits might extend beyond the setting of fair wages.

If CBAs are such a catch-all tool, then should we bother with living wage calculations?  Well, yes.  I can think of three reasons why at present.  First, some countries (most notably China) do not legally acknowledge freedom of association and collective bargaining as established by international standards such as the ILO Conventions Nos. 87 and 98.  This process in China must take place through government controlled unions, but some other countries don’t allow this process at all.  These conditions don’t automatically mean that collective bargaining is impossible, but workers risk a lot more in asserting these rights where they are not legally recognized.  Second, the collective bargaining process can take a long time and is often politically contentious.  Third, in some settings, unions are corrupt or are coerced into agreements that do not actually benefit workers.  Therefore, while a good collective bargaining process to determine living wages is preferable to a method of calculation, in the absence of political will for or feasibility of the former option, it would be nice to have a back-up option.

UN Norms: Dead or Alive?

So you thought the UN Norms were DOA?  Well, late last year, two lawyers, one from Australia and one from the UK, dredged up the UN’s attempt to create a global code of conduct for corporations and wrote an analysis on their use going forward.  Their paper is called The UN Human Rights Norms for Corporations: The Private Implications of Public International Law.

Overall, the authors conclude that discarding the Norms would be a mistake as their content provides a good basis for international human rights standards as applied to corporations.  They further suggest that the Norms might even be a basis for an international legal treaty in the long-run.  However, while they recognize that the Norms adopt a fairly standard international human rights format, they point to five main differences.  The authors don’t seem to think that the differences should pose an obstacle to the Norms’ acceptance, but I wonder if that’s true.

The differences (very generally paraphrased) are as follows: (1) the Norms are addressed to corporations, whereas other international human rights treaties are addressed to governments; (2) the Norms cover a number of different areas of law (eg, environment and consumer protection) which are normally addressed separately; (3) the Norms raise the new issue of a “sphere of influence” for corporations; (4) there is no clear delineation of duties for governments and corporations; and (5) the scope of application is wider than most codes in that it applies down the supply chain and to non-state actors.

According to corporations, the decision by the UN Sub-Committee on Human Rights (which drafted the Norms) to direct these standards to corporations rather than governments is a big deal.  Other international labor and human rights treaties, such as the ILO Conventions, are clearly addressed to governments, which makes it clear that governments have the ultimate responsibility in these areas.  The Norms’ orientation ties into the problem that there are no clear duties for governments versus businesses established in the Norms.  As a result, a main objection the business community had to the Norms is that corporations would be required to adopt functions meant to be carried out by governments.  (It should be pointed out, however, that many businesses have no qualms about this functional blurring when the results benefit them – eg, water privatization in South America and electricity privatization in the U.S.)  Businesses were equally concerned about being held accountable for actors and processes within a nebulously-defined sphere of influence.  Exactly how far did this influence extend, they asked?  And what level of responsibility would be assigned at what stage of the supply chain?  Furthermore, it seemed that their responsibility was supposed to cover a large number of areas, from labor and environment to consumer protection.  They felt the burden the Norms placed on them was too large.

The authors of the report argue (and again, this is broad paraphrasing) that corporations already have obligations regarding labor and the environment under domestic legislation, so the fact that the Norms ask them to take responsibility in these areas should not be a new idea.  Furthermore, the Norms do make it clear that the main responsibility for enforcement rests with governments, not with corporations.  The authors also point out that many laws are worded in such a way that explicit obligations on the part of the relevant parties are not clear, that these boundaries (such as a sphere of influence) are meant to be delineated through practice at the state level.  In particular, human rights are by their nature universal and therefore imprecise.  Likewise, the definition of responsibility applies in domestic law just as it does in international law, so again, this concept of obligation should not be anything new.  As to the point about covering multiple areas of law, the authors point to an artificial division in human rights between, for example, labor rights and human rights, which clearly overlap.

The authors are right to criticize corporations for being too reticent in accepting their responsibility regarding the rights enumerated in the UN Norms.  However, I think they are too dismissive of the corporations’ concerns.  For example, in an area where image is everything (or an awful lot anyway), it makes a big difference that an international human rights document is geared toward corporations rather than governments.  While the goal of drawing attention to the role multinationals must play in addressing these problems is admirable, the approach is a bit too “in your face” to be successful, at least in the current environment.  With regard to the wide range of areas covered by the Norms, I think this concern is the least problematic in the sense that I can’t see how it would impact corporations differently if the issues were separated into different treaties or agreements (would it?).  The inclusion of new areas of responsibility would surely be of greater concern.

The last three issues, regarding sphere of influence, delineation of responsibility and scope of application, all get to the balance of responsibilities between corporations and governments.  This is absolutely a legitimate concern, not only on the part of corporations, but from everyone’s perspective.  I think few people would disagree that corporations need to take more responsibility for their actions in the human rights arena.  However, I can see two problems with leaving the responsibility aspect too vague.  First, although the authors point out that often vague domestic laws are hammered out in practice, international laws usually do not have the weight of domestic laws.  As a result, who is to say that anything would be done in the first place?  Clarified standards would allow outside parties to hold corporations to particular obligations.  Second, if something were to be done, and corporations and governments found a balance, would this balance be right?  We see in our audits how much power corporations have in determining market conditions in some countries.  For example, local Chinese authorities routinely flout overtime laws to meet the demands of global retailers.  Do we really want corporations to have so much power that they determine, for instance, infrastructure development or government policy in some places?  Both scenarios point to a definite need for clarification on the role of corporations versus governments in upholding their human rights obligations. 

So while the UN Norms might be a good start for discussing the role of corporations and governments in promoting human rights, it seems like a good idea to have further discussions and, if possible, clarification on the areas raised by corporations.  Indeed, it seems potentially problematic to move forward without this clarification.

Harmonize Your Codes... Internally

A couple of weeks ago, I attended a briefing by the UK-based Ethical Trading Initiative (ETI).  The ETI had commissioned a study to assess how effective the implementation of its code of conduct has been, and it shared the results with a number of members of the CSR community.  One of the study’s findings was that although the number of hours worked is decreasing in some areas, workers in these areas are often not happy about working fewer hours as their wages do not rise by a corresponding amount, so they are left out of  pocket.  As the report researchers pointed out, codes of conduct must account for the relationship between these two elements.

However, in drafting and implementing codes, shouldn’t companies have to look at how all code elements, not just two, work together (or fail to, as the case may be)?  Much has been made of the need to harmonize various company initiatives in order to reduce the number of codes suppliers are subject to.  The ETI code study also alludes to this need.  What I have not seen is a call to have code clauses harmonized – I’ll explain what I mean.

In my experience, companies approach the writing of codes one clause at a time.  What should the clause on child labor say? OK, done.  Next.  What should the clause on collective bargaining say?  And so on.  The effect of this approach is a number of free standing clauses that happen to be on the same sheet of paper but that can either fail to support each other or can conflict in what they require of suppliers.

Here’s an example… I audited at a factory in the UK last year where some workers were working in excess of the number of hours stipulated in the code to which I was auditing.  When I asked the workers about this, they were adamant that they were working the hours according to a collective bargaining agreement and wanted the hours to earn more money.  Let’s say that I had pushed the working hours clause as most important.  Not only would this decision have compromised employees’ earnings, but it would have directly conflicted with their right to collective bargaining, a fundamental right covered under the ILO core convention no. 98.

This example raises another issue.  Some clauses might need to have greater weight than others.  For example, workers have so little input in code drafting, I would advocate that freedom of association and collective bargaining take precedence over all other clauses.  Then, say, wage and hour clauses would be the second strongest clauses, followed by child labor and health and safety.

Of course, I can’t prescribe a weight system.  This type of approach would have to be hammered out in multi-stakeholder fora.  My point is this: codes must be seen as unified documents, not the sum of individual parts.  All of the clauses must fit with each other and support each other in order to ensure that the code can function.  So when people draft a code, they should remember to harmonize internally as well as externally.

Legal Hurdles II: Problems of Jurisdiction

Last time, I got feedback that my blog was too technical, so while this time I am again looking at a piece of proposed legislation, The Decent Working Conditions and Fair Competition Act (US), I’ll try to analyze it from a more political perspective (which is more relevant in this case anyway).

The main issue I’m interested in with regard to this legislation is its motivation and the implications for how effective it might be.  This will lead to, as promised, issues of jurisdiction.

When I first glanced at this legislation, what struck me was that it was supported by the AFL-CIO and the United Steelworkers Union.  It also seemed strange that legislation of this type was being proposed under the current administration.  So, I did a bit of digging.  Turns out that the Congressional Sponsors of the Bill are all Democrats, and many of them are from states that have or have had significant manufacturing industries (Ohio, California, Texas, etc.).  Furthermore, if you recall, the Bush Administration passed protectionist measures in favour of the steel industry in 2002 (which were subsequently ruled illegal by the World Trade Organization), and the textile industry heavily lobbied the Administration for measures to protect it even before the abolition of quotas in 2005. 

I then ran a Google search on the Bill to see if there has been any commentary on it in the media.  Whereas a similar search on the UK’s corporate manslaughter bill (which is apparently dead in Scotland…) turned up a number of articles with critical analysis from the BBC, the Guardian, and the like, I had no luck with the US Bill in finding commentary from US news sources.  This lack of analysis might be due to the fact that the bill is not likely to pass, but what did come up were highly complimentary articles from small, local papers and promotional statements from union websites.

So all that was left really was to look at the text of the Bill itself.  Right away, the title is striking.  It not only mentions decent working conditions but includes fair competition as well.  A look through section 2 suggests that the drafters of this Bill were pretty serious about the latter point, as 3 of the 9 justifications for the Bill present in this section pertain to unfair competition.  Section 2(a)(6) says that businesses have the right to be free from competition with companies that use sweatshop labor.  Section 2(a)(8) states that it is a deceptive trade practice and a form of unfair competition for a business to sell sweatshop goods.  And section 2(a)(9) then concludes that not dealing with sweatshop goods, regardless of source, is consistent with U.S. international obligations and applies equally to domestic and foreign products thus avoiding discrimination among foreign sources.  This clause suggests that the Bill recognizes the many sweatshops actually operating in the U.S. right now; thus the non-discrimination element… Only, this number is probably far lower than the number in, say, China.  In European law, this approach might be termed an “indistinct” measure.  In other words, at face value, it is not discriminating against other countries, but its real effects result in such discrimination.  So what’s the problem with discriminating against countries that have sweatshops (other than the fact that the US has them too)?  Before I get into this, I’ll raise just one other point about the legislation.

This aspect of the law is particularly interesting.  The Bill proposes to amend a number of federal acts, among them section 202 of the Federal Trade Commission Act.  This section defines who has standing under this Bill.  In other words, it sets the guidelines for who is eligible to sue under the law.  It would seem logical that workers could sue for decent working conditions, but workers are not recognized as having standing here. While the FTC would investigate worker complaints under this Bill, the only parties with standing to sue would be competitors of retailers of sweatshop goods and investors in retailers of sweatshop goods.  You might say it’s a jurisdiction issue as workers in foreign factories won’t find the right to sue in a U.S. court.  Besides this not being entirely true, what about workers in U.S. sweatshops? 

At this point, I’d like to raise a larger point about jurisdiction that will hopefully also address why discrimination against other countries with lots of sweatshops is a problem under this proposed legislation.  To me, it seems pretty clear, as you’ve no doubt gleaned, that this legislation stems from special interests with protectionist aspirations.  And while it’s pretty hard to condemn a law that purports to protect working conditions, this legislation highlights the difficulties of trying to do so solely at a domestic level.  OK, let’s say that this legislation passes and succeeds in boosting U.S. manufacturing so that U.S. workers are better off.  That’s great, no question.  A lot of U.S. workers have suffered badly from the globalization of trade and it would be fantastic to see them get good, stable jobs in good conditions.  But what about the workers in China, Indonesia, Jordan (as an aside, the momentum for this legislation appears to have grown out of a National Labor Committee expose of terrible working conditions in Jordanian factories)?  There are no specifics in the legislation about how to encourage improvement at facilities overseas – it offers just a cut and run approach, which won’t solve anything and will probably make things worse.  In short, it fails to deal at all with decent working conditions and addresses only the unfair competition element of its stated intent.  While the U.S., from one perspective, does not have an obligation to fix other countries’ problems, surely it has an obligation not to exacerbate them by robbing them of trade and labor opportunities.  It could be that I’m overstating the problem of the Bill’s origin stemming from protectionist sentiment, and I hope this is the case, but given the orientation of the text, it seems like it is a significant problem, especially given the strange juxtaposition of protectionist language and looking to international standards and obligations as justification for it.

Jurisdiction is a problem because while there are domestic tools to address one country’s place in the global trade regime, the main international tool dealing with these arrangements, the World Trade Organization, does not account sufficiently, if at all, for human rights and labor considerations in its forum.  And while a few bilateral trade agreements have incorporated labor rights requirements, so many countries are affected by this problem that even this attempt at reciprocity does not seem appropriate.  But while we can push for a global, multilateral approach to trade and human rights, the reality is that there is no viable global jurisdiction to look to at present.

To be a bit fair, this Bill does contain many positives: recognition of the ILO core conventions (of which the U.S. has ratified only 2 of 8, so one wonders actually if passage of this Bill might be a formal ratification of the rest of these standards), the recognition of sweatshops as morally offensive and degrading to workers, the right of workers to sweat-free conditions, the wide range of stakeholders affected by poor labor standards, ethical procurement requirements by the U.S. government, and the need for competition to occur on fair footing.  Unfortunately, it is unclear how these measures could be implemented as the conceptual framework of the problems as outlined in the Bill is overly simplistic and does not offer concrete, effective solutions.  Sadly, until there is an effective international regime to support human rights globally, such measures will remain prone to protectionist motivations and special interests that, while often reflecting justified concerns, can jeopardize the rights of others.

Legal Hurdles: Part I

Many critics of CSR assert that a voluntary framework to improve human rights and labor standards is not adequate and that a regulatory framework must be established for this purpose.  This is easier said than done for a number of reasons, but two main hurdles are legal definitions and questions of jurisdiction.  In the next two blog entries, I will look at each problem in turn by means of analyzing newly proposed legislation in the UK and US respectively.

Legal Definitions and The Corporate Manslaughter and Corporate Homicide Bill (UK)

If you've ever seen or read The Corporation, you know that in the US and the UK, corporations are defined in law as "legal persons."  That means a large group of people are all bundled together as one person under the law.  As a result, if something goes wrong, it's very tough to successfully prosecute a business - how do you punish a "person" that isn't a person?  The frequently quoted line is "there's no body to kick, no soul to damn."  To make matters worse, under UK law at present, in order for a corporation to be found liable for corporate manslaughter, one senior official in the organization must be found responsible for what happened (this is called the identification doctrine).  Well, that's not how things work in the real world, is it?

Here's an example of the problem with applying this legal framework.  In 1987, the Herald of Free Enterprise, a ferry sailing between Zeebrugge and Dover, sank near the Zeebrugge harbor.  The incident resulted in 187 deaths, and the company that ran the ferry was charged with manslaughter. (BBC, "1987: Zeebrugge Disaster Was No Accident")  The Law Lords found that the tragedy was the result of "organizational sloppiness through and through."  But they concluded that while a corporation could be convicted of manslaughter, the organization could not be held liable legally for the incident, however culpable it was morally and in practical terms.  This is because the law requires that one person in the organization be found liable for "causing" the accident, and this person could not be pinpointed in the present case. (R v. P&O European Ferries (Dover) Ltd. [1991] 93 Cr. Ap. R. 72, June 5, 1990)  This legal approach helps to explain the following statistic quoted in The Guardian in July, 2006 - in the last 30 years, 10,000 people have been killed in work-related incidents; 70% of the deaths were attributed by the Health and Safety Executive to be a direct result of management failure, but only 11 company directors were convicted during this period, and only 5 were imprisoned for their crimes. (The Guardian, "Manslaughter Bill Must Ensure Justice for those Killed at Work," July 24, 2006)

The Herald of Free Enterprise was one of a number of tragedies that occurred in the UK at around the same time where a company was clearly responsible for a fatal accident but was not held liable due to the legal framework.  This spate of accidents led to public outcry and growing political support for a new law on corporate manslaughter. (BBC, "Corporate Killing Law to Change," July 21, 2006)  In 2005, proponents of such change kept their ears peeled during the Queen's speech for word of this development, but no mention was made. (King's College London, Lecture in Criminal Law, 2005)  Observers feared that Blair would never introduce a new law in this area after promising and failing to do so in three previous election manifestos. (The Guardian, "Corporate Manslaughter Crackdown Cheers Unions, July 20, 2006)  But on July 20, 2006, the Corporate Manslaughter and Corporate Homicide Bill was introduced in the House of Commons.  (It has 2 names for the offense because the Bill covers Scotland as well and the offense is called corporate homicide there.) (Corporate Manslaughter and Corporate Homicide Bill, Explanatory Notes)

The Proposed Law

The definition of the offense is as follows: "An organization to which this section applies is guilty of an offense if the way in which any of its activities are managed or organized by its senior managers causes a person's death and amounts to a gross breach of a relevant duty of care owed by the organization to the deceased."

According to a Home Office report entitled "Corporate Manslaughter: The Government's Draft Bill for Reform," the new offense would be based on "failures in the way an organization's activities were managed and organized" and would focus on "arrangements and practices in carrying out an organization's work, rather than an immediately negligent act by an employee."  So the focus would be more on collective company organization and action than on an individual employee's action, as is the case at present.  The offense would only kick in if the organization owed a "duty of care" to the victims - in other words, a company would not be liable under the law if it acted and something happened as a result to people for whom it had no responsibility.  Not surprisingly, a company will have a duty of care to its employees, but also to recipients of its goods and services.  If this duty of care is established, the breach of this duty must be "grossly negligent" (ie, a seriously serious kind of breach - the Bill gives serious management failure as an example).

The definition also states that the offense must "cause a person's death."  Causation can get pretty tricky as it's not always clear what causes an event, and sometimes there are multiple causes.  So the Home Office report seeks to clarify the definition of causation for the pursposes of the Bill by saying there must be: (1) more than a minimal contribution to death; and (2) no intervening act to break the chain.  In other words, the company must have contributed to the point that it influenced the outcome in some way, and nothing can have happened between what the company did and the death to change the course of events to the point that the company's act couldn't be shown to influence the outcome somehow.

Finally, the explanatory notes to the Bill state that the definition of senior manager "is intended to capture a level of responsibility that represents the overall way in which an organization manages or organizes any particular activity," such as when "management responsibilities relate to the whole of an organization's activities or to a substantial part of them."  This definition covers decision-making and management functions.

The Effect

So would this law work?  Let's look at it in the context of the Herald of Free Enterprise disaster.

(1) There would no longer be a question of whether an offense of corporate manslaughter exists, which was thee central question in that case - here's the law to prove it does!  Obstacle 1 gone completely.

(2) The new law would focus on activities, mainly decision-making and management, by senior company officials rather than looking for one culpable person as the identification doctrine requires.  This approach seems to fit much better with how corporations function, although one wonders if it goes far enough to account for the complexity of corporate structure in assigning accountability.  Still, it seems much more likely that the company operating the Herald of Free Enterprise would have been convicted under this test.  Obstacle 2 dealt with in a much better way.

(3) The offense would only kick in if a company owed a duty of care to the victims.  It seems fair to restrict the circumstances of conviction this way as manslaughter is an extremely serious charge, and it would not be fair to make companies accountable for every bad thing that happened, regardless of how remote it is.  With the Herald of Free Enterprise, it is reasonably clear that the company had a duty of care to the passengers of the vessel as recipients of its services, as well as to employees working the ferry.  So, the duty of care set by the law seems reasonable using this case as a guide post.  Obstacle 3 dealt with in a seemingly adequate way.

(4) Breach of this duty of care would have to be "grossly negligent."  Again, this high threshold seems reasonable given the seriousness of a manslaughter charge, depending on exactly what standard is set in this regard.  Given the Law Lord's assessment that the ferry company was sloppy through and through, it seems reasonably likely that an assessment of gross negligence would have been assigned to the company's organization and arrangement, thus fulfilling the definition of the new offense.  Obstacle 4 dealt with reasonably pending further definition.

(5) Causation is defined relatively broadly.  This element is important, particularly with regard to corporate crimes as it is often unclear exactly who contributed to an event and to what extent the person or people contributed in complex organization structures.  It seems clear that the ferry company's contribution to the accident was more than minimal and it does not appear that there was an extraordinary intervening act that would have alleviated its culpability, so most probably, this case would have met the causation requirement for the offense.  Obstacle 5 dealt with in a seemingly adequate way.

(6) The definition of senior management is flexible.  Again, this flexibility is important because it reinforces the notion that the organizational structure and decision-making process is more important than individuals.  The "sloppiness" of the ferry company's organization pointed to serious organizational deficiencies by senior management within the organization.  Obstacle 6 addressed, but as mentioned above, it would be interesting to see if this construction of responsibility adequately accounts for how corporations work.  It's better, for sure, but potentially still inadequate.

Will It Work?

Although this Bill rectifies a lot of the problems with the existing law, there are still concerns about whether or not it would be effective.  According to the House of Commons leader, Jack Straw, the ultimate test of the law's success is whether it changes behavior of managers so as to prevent accidents. (BBC, "Corporate Killing Law to Change," July 21, 2006)  In order to do this, according to the same BBC article from July 21, the definition of "grossly negligent behavior" will need to be clarified.  Furthermore, it seems that questions about penalties remain.  Under the current proposal, fines and remedial action are possible, but 2 major UK unions want a provision to jail corporate leaders directly responsible for corporate killing. (The Guardian, "Corporate Manslaughter Crackdown Cheers Unions," July 20, 2006)  With regard to whether the offense would extend down supply chains, my sense is that a duty of care would not carry this far because of the gravity of the offense - it would cast the net of liability too wide to be politically feasible.  I also wonder if the fact that this law does nothing to redefine the corporate entity (recognizing the many implications this would have for corporate law) will have implications for other types of corporate liability.  Finally, this law only applies to deaths in the UK, but I'll cover jurisdictional concerns more next week.

CSR: A Voluntary or Legal Initiative?

CSR is in an interesting state right now.  One of its initial attractions for corporate participants was its voluntary nature.  Codes of conduct, for instance, were guiding documents, not legally binding mandates.  But of late, it's less clear that CSR is entirely voluntary.

In September of 2005, Terry Collingsworth of the International Labor Rights Fund filed a law suit against Wal-Mart, accusing the world's largest retailer of, among other things, failing to uphold its code of conduct.  Mr. Collingsworth has also filed a number of other suits against U.S. companies allegedly complicit in labor violations committed by their overseas suppliers.  Although he pursued a different legal route in the Wal-Mart case, Collingsworth's tool of choice is the Alien Tort Claims Act (ACTA), an obscure piece of legislation originally used in piracy cases (on the high seas, not music).  A recent U.S. Supreme Court ruling has verified that it is possible to use the ATCA in very specific situations to hold U.S. companies accountable for overseas labor violations.

However, law suits are not the only sign that CSR is going legal.  A number of cities in the U.S., such as New York and Los Angeles, have adopted living wage ordinances.  In a new development, Chicago has adopted a controversial "big box" wage ordinance that would require mammoth retailers to pay their store employees a living wage if the retailers want to open stores in the Windy City.  The retailers have vowed to fight this ordinance in court, so we'll wait to see what the outcome is.

Europe is also jumping on the "legalization" bandwagon with a recent European Parliament initiative to promote fair trade, and reporting legislation in a number of countries, including France and England.  Belgium has even enacted a law that awards a social label to products made "ethically" (as defined in the law).

So it appears that CSR is in a fairly nebulous state at the moment, somewhere between voluntary and legal.  It will be interesting to see how this state of affairs progresses over the next couple of years.  In this blog, I'll try to point to developments that shed light on where it's all headed.