OECD Guidelines

  • Date:01 Dec 2007
  • Type:CompanyDirectorMagazine

Alan Deans examines how the OECD Guidelines for Multinational Enterprises are set to increasingly affect Australian companies expanding beyond our shores.

Strengthening it’s grip

BHP Billiton and the ANZ Banking Group share commitments to high levels of responsible business practices and sustainable development. Indeed, ANZ has recently been making much of the fact that it leads all other banks in the world that are included on the Dow Jones Sustainability Index, a rating system that measures a range of factors such as the provision of appropriate products and services, contributions to the well-being of disadvantaged people and care for the environment. Yet both of these giants of the Australian corporate scene are currently under the spotlight of the OECD for actions they are alleged to have taken in developing countries. Such scrutiny will have an impact on more local companies as they expand internationally.

BHP is under fire thanks to the displacement of local villagers around the Cerrejon coal mine in Colombia, which it owns in equal partnership with Xstrata and Anglo American. The issue pre-dates BHP’s purchase of its investment in 2002 and had initially been the subject of agitation against the previous owner, Exxon.

ANZ is being pursued in New Zealand by the Green Party for a matter that was dropped last year after a complaint was lodged in Australia by five non-government organisations. Its case centres around ANZ’s provision of a bank guarantee to a Malaysian forestry company that operates in Papua New Guinea. A Greens’ press statement alleges that the forestry company engaged in “illegal and unsustainable logging, human rights abuses and climate change” and it calls on ANZ to stop providing financial support. In a statement, ANZ says the Malaysian company refutes the claims of illegality and notes that it has written assurances from the PNG Government that the activities are legal and comply with its logging code.

The OECD is a forum for such actions because its member countries signed up several decades ago to a set of standards known as the OECD Guidelines for Multinational Enterprises. They set out global requirements for businesses in areas such as human rights, the environment, disclosure, employment relations and competition. But it is only since the revision of the guidelines five years ago, and the subsequent promotion of them by governments, that matters such as those faced by BHP and ANZ have become an issue.

Up until 2002, just one complaint had been lodged in Australia. Since then, there have been three. Around the world, there have been more than 110 complaints during the last five years, some brought against big names including Royal Dutch Shell, Alcoa, Rolls Royce, Airbus, BAE Systems, Toyota, BP, Anglo American, Bayer and Exxon. The guidelines don’t carry any legal sanctions, but the potential reputational impact is a major concern for boards and management. Despite some NGOs complaining that the guidelines have no teeth, clearly many others believe that they are worth more than the paper they are written on.

When a complaint is made, it is lodged with a government office known as the National Contact Point (NCP) in each OECD member nation. The Australian NCP is the Canberra-based executive member of the Foreign Investment Review Board, currently Patrick Colmer, who has a team of civil servants to assist him. When resolving any complaint, the emphasis is on mediating behind closed doors so that goodwill can be established and the chances of an agreed outcome can be enhanced. The NCP has no investigative powers.

ANZ has declined to discuss the PNG complaint or whether it uses the OECD guidelines when managing its global business operations. Its statement notes, however, that it is developing a forest policy “which will go beyond the legal minimum in many countries” and will require it to withdraw financial support from any client that refused to comply. BHP also refuses to talk about its Colombian case, citing the confidentiality aspects of the NCP process. However, its vice president of sustainable development, Ian Wood, explains that the guidelines were a consideration in formulating BHP’s own operating procedures that it uses at 70 sites around the world.

“We have a number of regulatory frameworks that we operate within and we have entered into many commitments as a company,” Wood notes. “We have to ensure that we effectively implement and abide by them all. The way that we manage that is to have one clear set of management standards that we apply worldwide. We revise those standards every three years to ensure that they remain relevant and consistent.”

BHP’s board has a sustainability committee that receives reports on how the standards are being implemented and whether there are significant deficiencies. The company also has a detailed audit procedure that requires every operation to be checked by external BHP managers and third party experts every three years to ensure compliance. Wood estimates that it takes a group of six auditors around one week to check that any given operation complies with 120 individual performance requirements.

Mining companies are frequently the subject of complaints by NGOs and others under various international regulatory frameworks. One of the best known cases in Australia involved Anvil Mining, a Canadian-Australian group that mines copper in the Democratic Republic of Congo. Its trucks and other equipment were requisitioned by the Congolese army to help suppress an uprising in a town near Anvil’s mine. While no complaint was made to the OECD, the incident received wide publicity because of the killings that occurred. The issue was whether Anvil should have done more to prevent its equipment from being used.

“We did not handle the aftermath as well as we should have,” Anvil Mining’s CEO, Bill Turner, says. “We would still have handled the incident itself in the same way, but not the aftermath. Now, whenever there is a security incident, we write a full report and it gets sent to 55 different people including the United Nations, the World Bank, the International Monetary Fund, the OECD, various embassies and the Department of Foreign Affairs and Trade in Canberra. Before, we issued a press release. But that addressed a different set of stakeholders. Now a full report goes out and it adds a level of transparency to the matter. What happened in 2004 was that a bunch of NGOs thought that we were covering something up.”

As part of its effort to restore its reputation, Anvil commissioned an independent consultant to write a report about the incident based around the OECD guidelines. “It was a pretty gutsy thing for us to do at the time because you could imagine someone coming in and nitpicking and pulling us apart,” Turner explains. “But we decided that we were a good company coming into a challenging environment and doing a good job. The consultant applied 21 standards from the guidelines and concluded that Anvil had a compliance score of 82 per cent. Criticism has since ceased.”

Because comparatively few matters raised under the OECD guidelines have found in favour of complainants, some NGOs criticise the system. Friends of the Earth, which has previously pursued cases, says it won’t allocate resources based on the experiences of its groups in countries outside of Australia. It notes that the sanction applied by NCPs are either weak or absent altogether, adding there is no independent verification or enforcement.

Oxfam, which is currently targeting an Australian mining company over its development of a mine in the Philippines, prefers to use its website and direct contact with businesses to influence outcomes rather than operate through a formal system. It employs a mining ombudsperson in Melbourne to pursue its advocacy of such cases.

OECD Watch, a network of NGOs and labour organisations that provides information about the guidelines and other OECD matters, found two years ago that there was “no conclusive evidence that the guidelines had a positive, comprehensive impact on multinational enterprises”.

It said the majority of OECD member governments had done ‘far too little’ to promote the guidelines, while few NCPs provided reasoned arguments for reaching their ‘questionable decisions’. “A few NCPs from the more prominent OECD countries have made clear their unwillingness to find companies to be in breach of the guidelines,” OECD Watch noted.

In October this year, OECD Watch issued a further report stating: “Almost none of the countries surveyed had properly functioning bodies to deal with complaints about violations of the OECD guidelines. Governments seem to have forgotten that they have an obligation to prevent and punish irresponsible behaviour by their companies, especially when such behaviour leads to human rights violations.”

Australia’s representative at OECD Watch, Serena Lillywhite from the Brotherhood of St Laurence, says there are varying views about the guidelines. “It is correct that they are voluntary. They are non-binding, and in that context they are not a judicial process. However, since they were reviewed, in excess of 110 cases have been heard around the world.

“We have an interest in testing voluntary mechanisms to see how effective they can be to uphold corporate responsibility and sustainable business practices. These guidelines are the most effective voluntary mechanisms that currently exist. They have the support of all key stakeholder groups. At least everyone is at the table discussing the issues.”

Lillywhite says the guidelines themselves are not at fault, but rather the effectiveness of individual NCPs. She believes that more work needs to be done in Australia to promote the guidelines so that enterprises are aware of them. (The NCP has recently completed a program doing just that.) She also questions whether the NCP should be an arm of government, as it is now, rather than run through a panel of representatives drawn from government, NGOs, business and trade unions. These points, and others, have been highlighted globally in a recent OECD Watch report for what it calls a Model NCP.

Despite the problems, however, Lillywhite cites a 2005 case to indicate that the Australian NCP has had a positive impact. It helped negotiate an outcome in favour of a group of five NGOs against GSL Australia, a British-owned company that ran immigration detention centres. GSL agreed to implement a range of improvements that meant international human rights standards would apply to its operations. The NCP’s summary of the case said: “The agreed outcomes provide a basis for GSL Australia to continue to improve its administration of immigration detention services.”

The guidelines

The OECD Guidelines for Multinational Enterprises are a set of voluntary principles and standards, agreed to by governments, that are intended to provide a basis for responsible business conduct anywhere around the world. Any person or organisation can lodge a complaint, which then has to be assessed by the signatory countries through their National Contact Points. The Australian NCP is managed by the Foreign Investment Review Board.

The guidelines are very broad, but they cover a wide range of points applying to a corporation’s activities. As a general policy, they require businesses to contribute to economic, social and environmental progress within a given country with a view to achieving sustainable development. They must also respect human rights, encourage local capacity building, create employment and training and refrain from improper involvement in political activities.

There are specific guidelines that provide for matters such as disclosure, employment, the environment, consumers, technology transfer, competition and taxation. Among the provisions of these particular sections of the guidelines, enterprises are asked to disclose details of their business activities and financial affairs, to operate within existing local laws, to respect the rights of trade unions, seek to outlaw child labour and slavery, and act to protect the environment. Actions should also be taken to combat bribery, act in consumers’ interests when supplying and marketing goods and services and refrain from entering anti-competitive agreements. Adherence should also be given to taxation laws.

The full guidelines can be found at: www.oecd.org/dataoecd/56/36/1922428.pdf