International human rights law is clear: private entities such as corporations are bound by international human rights standards. It is also now widely acknowledged that, because of the large financial, economic and social impact of corporations, stakeholders other than the Board and shareholders must be involved in the process of governing a corporation, in particular employees as well as affected communities.
The FIDH is thus particularly interested in the OECD Principles of Corporate Governance, the implementation of which should represent a step in guaranteeing full corporate responsibility. Unfortunately, the FIDH does not deem the revised draft as it stands to offer sufficient guarantees to ensure such an aim, just as it does not sufficiently include procedures by which people affected by corporate activity might have their views taken into account. The FIDH also wishes to express its concern about the vague wording of many of the provisions of the revised Principles, which may allow for interpretations contradicting the spirit of the Principles.
Chapter III - "The role of stakeholders in corporate governance"
The FIDH is particularly concerned about chapter III of the Draft revised principles of Corporate governance, which does not even define the stakeholders, and moreover does not reflect an enlarged understanding of the governance of corporations, beyond merely addressing the articulation between shareholders and managers - although such and enlarged understanding has now become the rule for all international bodies regulating corporations. Other stakeholders than shareholders and managers must have a voice in the mechanisms that govern corporations.
Definition of stakeholders
The FIDH holds the view that chapter III should include a definition of stakeholders as given by the "Norms on the responsibilities of transnational corporations and other business enterprises with regard to human rights", adopted by the Sub-Commission on human rights in august 2003 (E/CN.4/Sub.2/2003/12/Rev.2). The Norms state that
"The term "stakeholder" includes stockholders, other owners, workers and their representatives, as well as any other individual or group that is affected by the activities of transnational corporations or other business enterprises. The term "stakeholder" shall be interpreted functionally in the light of the objectives of these Norms and include indirect stakeholders when their interests are or will be substantially affected by the activities of the transnational corporation or business enterprise. In addition to parties directly affected by the activities of business enterprises, stakeholders can include parties which are indirectly affected by the activities of transnational corporations or other business enterprises such as consumer groups, customers, Governments, neighbouring communities, indigenous peoples and communities, non-governmental organizations, public and private lending institutions, suppliers, trade associations, and others."
Enhanced participation of all stakeholders
The FIDH is seriously concerned about the vagueness of the wording of chapter III regarding the participation of stakeholders. In its current wording, chapter III falls far short of an objectively effective mechanism to ensure stakeholder participation.
The FIDH wishes to underline that the international human rights normative framework includes the right of those affected by key decisions to participate in the relevant decision making processes. The right to participate is reflected in numerous international human rights instruments such as the International Covenant on economic, social, and cultural rights and the UN Declaration on the right to development, as well as in the above-mentioned UN "Norms on the responsibilities of transnational corporations and other business enterprises with regard to human rights".
In particular, the FIDH is concerned about the insufficiency and lack of precision of
Principle III B ("Where stakeholder interests are protected by law, stakeholders should have the opportunity to obtain effective redress for violation of their rights"),
Principle III C ("performance-enhancing mechanisms for employee participation should be permitted") and
Principle III D ("Where stakeholders participate in the corporate governance process, they should have access to relevant information"),
In effect, these provisions allow a wide margin of discretion to the managers as to the information they agree to make public, and which does not guarantee access to judicial recourses for affected stakeholders.
The FIDH is also concerned about proposed Principle III E ("Stakeholders, including individual employees, should be able to freely communicate their concerns about illegal or unethical practices to the company board and their rights should not be compromised for doing this"). The FIDH regrets the lack of supervising and monitoring mechanism induced by such a provision. "Communicating freely" in no way guarantees that stakeholders’ viewpoint will be taken into account in governing procedures. The FIDH holds the view that the OECD principles should encompass a mechanism such as provided for by the above-mentioned UN Norms: "This monitoring [of the enterprise] shall be transparent and independent and take into account input from stakeholders (including non-governmental organizations) and as a result of complaints of violations of these Norms. Further, transnational corporations and other business enterprises shall conduct periodic evaluations concerning the impact of their own activities on human rights under these Norms"
Chapter IV "Disclosure and transparency"
The FIDH is surprised by the limited scope of Principle IV A on the material information to be disclosed by a company. In particular, it regards Principle IV.A.7 ("Disclosure should include, but not be limited to, information on: [...] Material issues regarding the employees and other stakeholders") to be largely insufficient to ensure effective responsibility by the corporation. The FIDH calls to mind that there is a growing recognition that the policy of disclosure of a corporation should include not only their policy regarding human rights, social and environment responsibilities, but also the actual impact of their activities on such domains. The annotation could usefully call for the commissioning by the board of directors of independent human rights, social and environmental impact assessment.
Chapter V "The responsibilities of the board".
The FIDH wishes to express its serious concern about Principle V C: "The board should apply high ethical standards. It should and take into account the interests of stakeholders". The FIDH calls to mind that "ethical standards", however "high", do not constitute an internationally agreed norm, and finds it particularly regrettable that the revision of Principle V.C does not call for the duties of directors to respect explicitly the Human Rights Declaration and other human rights instruments, which form the only possible foundation of such "ethical standards".
Besides, the FIDH is surprised to see "ethical standards" and the "interests of stakeholders" lumped in one §. Experience unfortunately teaches us that the two are frequently at odds, and are at best two distinct issues. To have them together under one principle, may confuse corporation about their duties and the broader principle of stakeholder participation.
We appreciate the opportunity to submit these remarks and suggestions and remain at your disposal to clarify any of the issues raised.
Contacts :
– Anne-Christine Habbard
Secretary General, FIDH
– Marie Guiraud
Globalization and Human Rights Officer
– Antoine Bernard
Executive Director
10 February, 2004