BACK TO MAIN  |  ONLINE BOOKSTORE  |  HOW TO ORDER

The battle for corporate accountability

Ten years after the 1992 Rio Earth Summit embraced corporations and endorsed the trend towards deregulation and privatisation, the WSSD, following intense NGO lobbying, took a tentative step towards a corporate accountability agenda.

‘IT is dangerous to assume that the goals of the private sector are somehow synonymous with those of the United Nations, because most emphatically they are not.   Business and industry are driven by the profit motive.... The work of the United Nations, on the other hand, is driven by a set of ethical principles that sustain its mission - principles of the Charter of the United Nations, in the Universal Declaration of Human Rights, in the Convention on the Rights of the Child... In coming together with the private sector, the UN must carefully, and constantly, appraise the relationship.’ 

Carol Bellamy, Executive Director of UNICEF, 1999

A KEY principle in establishing the ‘rule of law’ is to ensure that the fox is not invited to guard the chicken coop - that corporations to be regulated do not exercise undue influence over the regulatory process.  In reality, DuPont lobbied against the Montreal Protocol on ozone-depleting substances in the 1980s. Energy companies have fought hard to prevent the US from signing on to the Kyoto Protocol on climate change. They have even shaped the US energy policy. Now in addition to financing political campaigns and lobbying national governments before and at UN meetings, business and industry rub shoulders with high-ranking UN and governmental officials in business-led events, such as the annual World Economic Forum. 

In these circumstances and given all the scandal surrounding Enron and WorldCom, many non-governmental organisations and citizens’ groups have increased their efforts to bring transnational corporations (TNCs) within a framework of global governance, not just a patchwork of national laws, rules and regulations. As the spread of TNCs widens and deepens across the world in every sector, from production to finance, global regulation is even more urgently needed.

The background

Starting in the early 1980s and until the 1990s both the UN Conference on Trade and Development (UNCTAD) and the then UN Centre on Transnational Corporations (UNCTC) worked earnestly and came close to formulating an international Code of Conduct on TNCs. But the 16-year-long negotiations were brought to naught and the entire UNCTC was dismantled prior to Rio. The Business Council for Sustainable Development (BCSD), set up at the time, gave assurances that corporations would self-reform their ways. The BCSD combined forces with the International Chamber of Commerce to form the Business Action for Sustainable Development in preparation for the WSSD. With media giants such as the International Herald Tribune (a New York Times and Washington Post paper) on that platform, they have now successfully projected business and industry as sufficiently responsible and capable of taking on partnerships (the voluntary Type II outcomes of the WSSD) for implementing sustainable development along with all other stakeholders.

The battleline at the WSSD was between legally binding rules with transparency and liability in a corporate accountability framework, and self-regulation in the name of enlightened corporate responsibility. The second battleline was around the need for an international legally binding instrument as opposed to only national regulation.

Corporate accountability at WSSD

Against this backdrop, corporate accountability became a highly contentious issue and was hotly debated throughout the WSSD process.  It was also one of the very last paragraphs to be agreed upon in Johannesburg.  In many ways, it symbolised the North-South divide that dominated the meeting rooms.

In the final Plan of Implementation agreed by 104 heads of state and government on 4 September 2002, it appears in three different sections: changing unsustainable patterns of consumption and production; globalisation and in Chapter X on ‘Institutional framework for sustainable development’.

For purposes of brevity, this discussion will focus on in-depth deliberations in the ‘institutional framework’ section and the deliberations in WG III at the last preparatory negotiations in Bali in May-June 2002, and merely repeats the language agreed to in the other two sections for purposes of comparison.

The posturing around corporate accountability began when a single-line text was provided by the two Vice-Chairs of WG III towards the end of the third preparatory meeting in New York. This was after strong statements and a collective call by many NGOs, women’s groups, indigenous groups and youth groups for an international legally binding convention on corporate accountability. Some government delegations also expressed the need for an international instrument. That one line read:  ‘Develop an international framework for transnational corporate accountability.’  The immediate reaction from some developed countries, most vociferously the US, was to object. The Group of 77 developing countries and China, after PrepCom III, made some recommendations, supporting an international framework.

Evolution of Paragraph 122(f)

Phase 1: First reading/soliciting positions/general views on issue

Negotiations commenced on 29 May with a compilation text of the G77/China and PrepCom III Vice-Chairs text. In Bali the Chairs of WG III sought to look for common ground among various country positions.  Following an hour-long debate on this, the single-line text bloated to six different unwieldy paragraphs with alternatives provided by the EU, US, Norway, Hungary, G77/China and Switzerland.

The EU’s version was:  ‘Adopt and effectively implement private-sector best practices for sustainable and responsible corporate governance building on the global reporting initiative and the UN Global Compact.’  The EU position was that corporate accountability is politically a good idea but is a matter for national policy.  The EU cited the OECD Guidelines for Multinational Enterprises, which are purely voluntary in nature, and said that they preferred to advocate voluntary global reporting initiatives such as the Global Reporting Initiative (GRI) endorsed by the UN Environment Programme (UNEP) and the UN Global Compact (GC) which are along the same lines.

The US proposal was: ‘Promote corporate responsibility’.  Even though pressures for domestic regulations are growing with the numerous corporate scandals in the US, the official stance remains uncompromising, i.e. corporate freedom and self-regulation. The US delegation argued that there were already several existing guidelines and therefore it was not necessary for the WSSD to go beyond.  The single-line text on ‘international framework for TNC accountability’ was too negative and did not do justice to the positive things which businesses do to assist sustainable development. The US delegation felt it would be better to make a general statement rather than trying to adopt and enforce binding legislation.

Norway, who was an active force in the negotiations, suggested that the proposed text was very reasonable but that it was important to work on the exact wording.  The delegation did not feel it was a very negative portrayal of business. It raised the issue that side events and world events had raised awareness of this issue and that openness and transparency in the corporate sector were very necessary.

Hungary, speaking for the Eastern and Central European (ECE) states, requested that the phrase ‘with the cooperation of all stakeholders’ be added to the text in keeping with the spirit of transparency.  The statement made by the delegate underscored the fact that national governments alone cannot solve this problem, that this was a minimum request and although it was found in other parts of the text, it was important to have it in this section on institutions as well.

The G77 agreed with Hungary, and added that TNCs are a major issue for developing countries.  While they did not want to scare away investors, it was important to acknowledge that they are key players, that their role cannot be disregarded and that there was a need to ensure that their technology was compatible with sustainable development. Saint Lucia was one of the most vocal of the G77 members during the PrepCom meetings, making a strong plea for legally binding corporate accountability rules as TNC activities have such a major impact on societies, especially developing countries.

Switzerland suggested alternative text to try to encompass all views expressed: ‘Promote corporate responsibility and accountability through building, inter alia, on the UN Global Compact and OECD Guidelines for Multinational Enterprises as well as by using tools such as the internalisation of external costs, environmental management and accounting and environmental reporting.’

The US and Japan supported the Swiss idea because it excluded the call for a legally binding framework but rejected the second part on tools. The EU hailed the mention of the OECD Guidelines.

Phase 2: Second reading/compromise text offered by Chair

On 3 June, the Chairman offered the following compromise language to gauge the response of delegates: ‘Promote an international framework for corporate accountability with the cooperation of all stakeholders.’

The G77 agreed but Australia objected.  More discussion followed for hours on end. Since it was clear that the negotiators were not making any progress he sent the issue to a contact group for informal discussions to try to break the deadlock.

Phase 3: Alternative text tug-of-war/bracket insertion process

On 5 June, the Chair looked for a report back from the contact group but was instead offered further alternative language signifying a lack of agreement on the issue.

The G77 proposed: ‘Promote corporate responsibility and accountability and the exchange of best practices during multi-stakeholder segments of the CSD [UN Commission on Sustainable Development] on an annual basis aimed at achievement of sustainable development, taking into account the work of relevant bodies.’

The US questioned the need for the CSD to review this annually. They counter-proposed: ‘Promote corporate social responsibility and the exchange of exemplary international business practices through recognition of best business practices and building support for voluntary guide-lines on corporate social responsibility including the UNGC (Global Compact), Sullivan Principles (a US domestic initiative on self-regulation), GRI and OECD Guidelines for MNEs.’ All reference to ‘accountability’ was removed.

The G77 responded that they were not aware of the Sullivan Principles, that the OECD Guidelines are not suited to the majority of developing countries and that there was no support in the Group for voluntary initiatives. They also questioned how and where responsibility would be promoted. None of the suggestions were complete, comprehensive and acceptable, said the G77.

Switzerland tried to mediate and accommodate diverse views in compromise language: ‘Promote corporate responsibility and accountability and develop a framework for exchange of best practices aimed at the achievement of sustainable development.’

Japan supported the US proposal but also said that it was not ready to commit at that stage because Japanese TNCs were controlled by national laws and therefore there was no necessity for an international framework.

Hungary/ECE insisted on a framework on environmental as well as social responsibility.

Australia supported the US, clearly wanting only voluntary guide-lines, but rejected any reference to examples such as the Global Compact, Sullivan Principles or OECD Guidelines.

The EU said they were flexible about the US proposal but wanted social and environmental responsibility reflected.

The Chair then proposed yet another new paragraph, taking into account the tone and tenor of the debate so far, ‘because 6 existing versions cannot be sent to Plenary’. He suggested: ‘Promote an international framework for corporate responsibility and accountability including social and environmental responsibility through voluntary guidelines and the exchange of good practices in the context of sustainable development, including through multi-stakeholder dialogues of the CSD as well as using tools such as the internalisation of external costs, environmental management and accounting and environmental reporting.’

The US again rejected reference to an international framework and insisted on bracketing all the ‘tools’. In UN parlance bracketing a text amounts to no agreement.

Australia inserted the word ‘voluntary’ before the phrase ‘corporate responsibility and accountability’. Norway, which supports regulation, in turn bracketed that word as well as the enumeration of tools.

In the face of such differences and near intractability, the Chair suggested that the parties with most differences go lock heads in informal consultations on the matter and he appointed the Swiss delegate as ‘friend of the Chair’ to mediate and try to resolve the issue.

Phase 4 : Report back from the ‘friend of the Chair’

The Swiss delegate reported some progress that Australia agreed to drop the word ‘voluntary’, Norway dropped its insistence on the tools with a caveat reserving its right to revisit the issue, depending on the final wording of this paragraph. More discussion took place under a cloud that this matter, if unresolved, may have to go to the ministers’ level and there were fears of it being deleted altogether. And so delegates went back to the drawing board and on 12 June they finally agreed on:

‘Promote corporate responsibility and accountability and the exchange of best practices in the context of sustainable development, including, as appropriate, through multi-stakeholder dialogue, such as through the Commission on Sustainable Development, and other initiatives.’

General observations

Within the G77/China membership, there were a number of countries that wanted strong language on corporate accountability. Almost all felt constrained by not wanting to project a stance that would deter foreign investors. Nevertheless, the failure of self-regulation and voluntary codes of conduct could not be denied by anyone.

Throughout the PrepCom sessions, from New York to Bali, delegates awoke daily to fresh reports of corporate scandals, and faces of CEOs prominently splashed across the front-page news. With persistent and active lobbying by NGOs, indigenous peoples, women’s groups, youth groups, as well as public demonstrations in Johannesburg, the issue of corporate accountability was dragged back to the inter-governmental agenda.

The issue was also used by the G77 to bargain for some leeway in the means of implementation or in good governance.

Its only unambiguous supporter was Norway but even the brave Vikings succumbed to reported calls from Washington DC to drop their insistence on ‘monitoring of (financial) pledges’ in another part of the text.  Although the Norwegian Minister made a strong statement at the Plenary, the delegation dropped the ‘tools’ they had insisted upon all along in this section and this may have been an indication for the G77 that their support was waning. Eventually, the  G77 too relented somewhat.

The tedium and tortuous process wear negotiators down considerably and the atmosphere in the rooms can get outright cold. Scepticism and suspicion inevitably reign supreme and even the best of friends outside rooms turn arch rivals at the table. It takes great familiarity with issues, much tenacity and tremendous courage to negotiate every line, word and comma in the text.

Corporate accountability in other parts of the Plan of Implementation

In Chapter III on ‘Changing unsustainable patterns of consumption and production’, after much the same haggling and trading, delegates also agreed to similarly weak and watered-down language in paragraph 17:

‘Enhance corporate environmental and social responsibility and accountability.  This would include actions at all levels to: (a) Encourage industry to improve social and environmental performance through voluntary initiatives, including environmental management systems, codes of conduct, certification and public reporting on environmental and social issues, taking into account such initiatives as the International Organisation for Standardisation (ISO) standards, Global Reporting Initiative guidelines on sustainability reporting, bearing in mind Principle 11 of the Rio Declaration on environment and development; (b) Encourage dialogue between enterprises and the communities in which they operate and other stakeholders; (c) Encourage financial institutions to incorporate sustainable development considerations into their decision-making processes; (d) Develop workplace-based partnerships and programmes, including training and education programmes.’

The paragraph on corporate accountability in Chapter V (‘Sustainable development in a globalising world’) was by far THE most contentious, one that virtually held up the entire adoption of the Plan till the very final hours in Johannesburg. Paragraph 45.ter now reads:

‘Actively promote corporate responsibility and accountability, based on the Rio Principles, including through the full development and effective implementation of inter-governmental agreements and measures, international initiatives and public-private partnerships, and appropriate national regulations, and support continuous improvement in corporate practices in all countries.’

This paragraph is considered ‘one of the bright spots in an otherwise disappointing WSSD’. It was arrived at amidst strong and dramatic objections from the US to the understanding that should be accorded to the words ‘full development’. The US delegate tried to insist that the paragraph only refers to ‘existing inter-governmental agreements’ but the Norwegian and Ethiopian delegates insisted that ‘full development’ refers to new agreements, otherwise the paragraph would not make much sense (see boxed article on p. 12).

Conclusion

Many NGOs and a few governments have always considered the absence of corporate regulation one of the main failures of the Rio Summit in 1992. Given the scenario of cascading corporate scandals in the US (such as Enron and WorldCom) and considering that these are mere tips of the iceberg, Friends of the Earth International along with other NGOs made corporate accountability the centrepiece of their campaign to ensure that the WSSD did not let big business off the hook. 

As evident from the above, the text toward achieving that end, started strongly for a legally binding framework for corporate accountability. In the face of adamant objection, especially from the US and its partners, it was used as a pawn/bargaining chip in the negotiation process and diluted down. Only Para 45.ter holds some promise for the full development of inter-governmental agreement on corporate accountability. Yet, without the blessings of the big powers, who are hosts to major TNCs, real progress in regulating the big polluters will remain elusive.  Given the history on the issue, the challenges will be great.

It is worth reiterating that the business lobby is so strong as to be able to influence government positions long before negotiators actually sit to thrash out language in meeting rooms.  Their ‘revolving door’ policies (where government and corporate officials take on jobs interchangeably) and campaign financing tactics are alone sufficient to ensure their say and way in any inter-governmental negotiation.  This has to be contrasted with the difficulties NGOs face for instance, as well as the dilemma of weaker developing-country delegations who are expected to create conducive environments to invite foreign direct investment and have to compete for small funds from limited sources.  Given these realities, the legally binding framework may not after all see the light of day barring a major catastrophe.

Box article:

The fight for the WSSD’s commitment to corporate accountability

Martin Khor

ONE of the few bright spots in an otherwise disappointing World Summit on Sustainable Development was the successful campaign by many NGOs to get the WSSD to make a commitment to make corporations accountable for their actions and the effects of these.

Many NGOs had made the need to regulate corporations and make them accountable as their main priority for the WSSD. They saw the failure of Rio 1992 as stemming from the Earth Summit’s rejection of the need to regulate companies.   In the decade after Rio, the transnational corporations (TNCs) became much stronger and were now disciplining governments for their own interests, instead of governments disciplining them in the public interest.

The WSSD eventually did adopt a significant paragraph (para 45.ter in the Plan of Implementation) on corporate responsibility.  But there was a dramatic last-minute fight to keep this para intact.

Para 45.ter of the draft Plan of Implementation read: ‘Actively promote corporate responsibility and accountability, based on the Rio Principles, including through the full development and effective implementation of intergovernmental agreements and measures, international initiatives and public-private partnerships, and appropriate national regulations, and support continuous improvement in corporate practices in all countries.’

This para was approved together with the rest of the draft Plan on the night of 3 September after a last-minute attempt by some countries to water down the paragraph was turned back by forceful interventions by Ethiopia and Norway.

As a result, one of the few achievements of the Summit will be a  commitment to promote corporate responsibility and accountability through the full development and effective implementation of intergovernmental agreements and measures.

The meeting of the Main Committee on 3 September night to adopt the draft Plan, chaired by Emil Salim of Indonesia, was delayed for three hours when delegates held last-minute negotiations to amend three paragraphs regarding women’s rights; human rights and fundamental freedoms relating to health,  and access to healthcare services.

The draft Plan was adopted at almost 1.00 a.m. Immediately following this, a member of the UN secretariat sitting on the dais read out a prepared statement that it is the ‘collective understanding of the contact group on means of implementation’ that the paragraph regarding corporate responsibility and accountability  refers  to ‘existing’ intergovernmental agreements and international initiatives, and that this understanding should be reflected in the final report of the Conference.

The reading of this statement, according to several delegates, was an untransparent action as there was no explanation at the session as to how the statement had come about, whether the contact group had met in full membership, and who had taken the decision to enable it to be termed a ‘collective understanding’.

It was also unusual that a UN official instead of a government representative, such as the chairman of the contact group, read out the statement and without an introductory explanation.

According to a document issued by NGOs, the statement was the result of an attempt by the United States delegation to neutralise the text on corporate accountability that had already been agreed to by the contact group on globalisation and the means of implementation.

The contact group had been faced with three proposed versions (from the EU, the G77 and the US) of the paragraph on corporate accountability. Part of the EU-proposed text read:  ‘Actively promote corporate responsibility and accountability.... including through full and effective implementation of existing intergovernmental agreements and measures....’

On 31 August evening, Ambassador John Ashe, the contact group chairman, produced a new text, in which the word ‘existing’ had been removed and the words ‘full development’ added.

The text, which was the one that was eventually adopted by the Main Committee as para 45.ter of the draft Plan of Implementation, reads: ‘Actively promote corporate responsibility and accountability, based on the Rio Principles, including through the full development and effective implementation of intergovernmental agreements and measures, international initiatives and public-private partnerships, and appropriate national regulations, and support continuous improvement in corporate practices in all countries.’

After the intervention by the UN official reading out the ‘collective understanding of the contact group’,  the Ethiopian delegate Dr Tewolde Berhan Egziabher took the floor and asked for clarification on who in the contact group had made the decision to issue the statement, as his delegation for one had not been informed of such a consensus reached.

Tewolde also said the statement about ‘existing’ agreements was not logical when read in conjunction with the paragraph.  He said that in the text, ‘full development’ obviously refers to new agreements. ‘How then do we develop agreements in the future if the statement refers only to existing agreements and thus prevents us from what is to be done in the future?   The whole thrust of the paragraph is what is to be done in the future.  But what is read out in the statement implies there is no future agreement.’

Tewolde asked where then was the logic of the statement and asked for clarification.

The contact group chairman John Ashe explained that although not all delegations were present at the contact group meeting that decided on the statement, representatives of delegations were present and thus it was assumed that it was the intention of the group.

Tewolde then reiterated that the term ‘full development’ seems to refer to new agreements, and therefore the statement that only existing agreements were meant must be wrong.  ‘Let us assume our representatives made a mistake.  Do we as countries repeat that mistake? My proposal is that the contact group’s statement is incompatible with our decision here (i.e. the text in the draft Implementation Plan), and one or the other has to be discarded, and I propose that the statement has to be discarded.’

After a brief exchange for clarification between the Main Committee chairman, Emil Salim, and Tewolde, the chairman ruled that para 45.ter of the text is agreed to and would be kept and that the statement of the contact group would be discarded.

The Norwegian Minister for International Development, Ms Hilde Johnson, then stated that she also had concerns on the contact group statement.  She said that according to UN procedure, informal contact groups do not formally exist, and thus should not be referred to in an official UN document.  ‘We question that statement on behalf of the contact group and we have the same understanding of the situation as Ethiopia,’ she said.

But even after the passing of the para by the Main Committee, it was not the end of the story.

The next day (4 September)was the last day of the WSSD.  At the final plenary, chaired by the South African President Thabo Mbeki, the US delegation stated it wanted to make interpretative statements on four points relating to the WSSD documents.  One of the points was in relation to the Implementation Plan’s para on corporate responsibility and accountability.  According to the US delegate, the chairperson of the Main Committee meeting (held on 3 September night) had said that it was the collective understanding that the para refers to existing international agreements, and that this should be reflected in the report of the WSSD.

In fact the US delegate made a factual error in announcing the US interpretative statement.  The chairman of the 3 September night meeting, Emil Salim, expressly rejected the  proposal read out by the UN official that it was the common understanding of the contact group on globalisation and means of implementation that only existing intergovernmental agreements were being referred to.  The chairman’s clear decision to reject the proposal came after strong objections by Ethiopia and Norway.

That the chairman had rejected the proposal that there was ‘collective understanding’ which should be reflected in the WSSD report, was confirmed personally by Emil Salim to the author of this article during the final plenary session of 4 September itself.

It is unclear whether the final report of the WSSD will endorse the US position that there was a collective understanding that the para on corporate responsibility refers only to existing agreements.  If it does, then this would be to cater to a total untruth, for the decision of the chairperson on the night of 3 September was to reject the proposal for diluting the text, and to adopt the para as it was, without any accompanying ‘understanding’.

The next step forward is for the NGOs, the governments and the UN to follow up on the para, and to begin as soon as possible to take steps to internationally regulate the corporations so as to make them accountable.         

 


BACK TO MAIN  |  ONLINE BOOKSTORE  |  HOW TO ORDER