The spectre of local litigation looms over companies for their actions abroad

IN A LOS ANGELES COURT ROOM: AN ONGOING trial against Unocal Corporation, a massive California-based oil company. Fourteen Burmese villagers allege that the multinational is accountable for human rights abuses perpetrated during the building of a gas pipeline. In the lawsuit, one woma  alleges the military forced her family to leave their home and kicked her baby into the fire, where he died.

Represented by lawyer Terry Collingsworth and other professionals from the International Labor Rights Fund, the villagers believe Unocal should pay damages. Unocal disagrees, and is making a strong case for itself.

On January 23, Judge Victoria Chaney of the California State Court announced a preliminary ruling in favour of Unocal. The final outcome of Doe et al v. Unocal Corp. however, which was filed nearly a decade ago and has been winding its way through the US court system ever since, remains to be seen. In fact, verdicts are pending in a huge number of cases which take multinational corporations (MNCs) to task for their activities in developing countries. They are all part of a larger trend—the increasing efforts by NGOs and, to a lesser extent, international bodies and governments, to hold MNCs accountable for their activities in developing countries.

The ultimate goal of the current push to hold MNCs accountable is to eliminate corporate sponsorship of, or complicity in, human rights abuses, environmental degradation, and conflicts—essentially, to ensure that corporations ‘do no harm.’ With this in mind, the United Nations, the Organization for Economic Cooperation and Development, the Organization of American States, and the International Labor Organization, as well as governments, non-governmental organizations and business associations, are attempting to create rules that provide companies with clear guidelines for responsible behaviour, and to enforce penalties upon companies that break the rules. The difficulty comes in ensuring that MNCs’ valuable economic contributions are not jeopardized; shutting down industry is not the goal.

It’s no easy task. What’s more: despite having a common goal, with so many different bodies and so many disparate opinions, progress is slow. As Karen Ballentine of the International Peace Academy states, “it is early days, and it will probably take another ten years to even get consensus about what it means to ‘do no harm.’” Mark Taylor, deputy director of the Norwegian Fafo Institute for Applied International Studies, concurs, pointing out “just how young the overall issue of corporate accountability for human rights is.” He also claims that while a single international standard might be handy, “it is going to be domestic law which will have the most relevance for companies, as we are seeing an increasing willingness by the home countries of companies operating abroad to legislate the ethical behaviour of their nationals abroad.” The corporate world is waking up to this reality. In a  August 2003 piece published in the Harvard Business Review, Elliot Schrage, a lawyer, adjunct senior fellow at the US Council on Foreign Relations, and former senior vice president at the Gap, warned global companies that “the courts are increasingly willing to apply international human rights standards to corporate conduct.” Schrage emphasized that this should be a pressing concern for every global executive, noting that most of the cases already underway “have targeted companies in the extractive industries such as mining and petroleum, but the fact is that all companies whose supply chains or distribution markets reach into developing countries are vulnerable.”

Interestingly enough, it is our neighbours to the south (the same ones that refuse to support the International Criminal Court) who possess the most robust legal instruments for holding MNCs accountable for questionable actions in developing countries. Many MNCs with assets in the US—not just those with headquarters—are likely to feel the heat. Thanks to the Alien Tort Claims Act (ATCA), a bizarre little US law signed into force by George Washington in 1789 to deal with piracy, non-US citizens have access to the US legal system to bring actions against US persons or companies who are alleged to have utilized abusive tactics “committed in violation of the law of nations” in their foreign operations. The ATCA has already been successfully applied in suits against former Bosnian Serb President Radovan Karadzic and was one of the packet of laws brought under in the 1996-97 Holocaust Litigation cases against Swiss banks.

Individuals or groups who are upset with an MNC’s activities but who do not have legal recourse in their own country can turn to people like Scott Greathead, an international human rights lawyer and the CEO of World Monitors Inc., to help them prosecute a big business in the US. The Unocal case mentioned above is the most famous, but the range of cases is enormous; the list of high-profile and deep-pocketed defendants includes IBM, ExxonMobil, ChevronTexaco, Citicorp, Coca-Cola, Gap, Ford, and Del Monte. If these cases are successful, it will redefine social and environmental monitoring procedures for overseas operations. Punitive damages have the potential to run into the billions, according to lawyers familiar with the issue.

To be sure, none of these cases have been settled yet, and not a single dollar in damages has been paid (although estimates on legal costs are in the tens of millions). Despite the years of wrangling, there is still no precedent; ATCA is a controversial law. Business advocacy groups such as the US Chamber of Commerce, as well as the Bush administration, have come out swinging against ATCA. The Chamber’s vice president recently penned an impassioned op-ed claiming that ATCA “promises nothing but trouble for US economic and foreign policy interests worldwide,” and argues that “efforts to obtain its repeal must begin now.” Ballentine suggests that the US State Department applies huge amounts of pressure to the judges hearing these cases, filing countless amicus briefs and pushing them to dismiss the cases. The US has filed an amicus brief in a case against ExxonMobil concerning their operations in Indonesia, calling upon the court to dismiss the case citing national interests and
security as justification.

The battle rages on in the US, between CEOs who often view claims brought against MNCs under ATCA as nothing more than litigation- run-amok, and lawyers and human rights activists who perceive the law as a credible tool for holding corporate miscreants accountable. In Canada, however, the fight is not even being fought.As a spokesperson from the Department of Foreign Affairs states, there is no equivalent to the ATCA in Canada, and there is no movement within the government to implement a similar law “because there seems to be no reason or no need for it.” DFAIT does point out that Canada enforces the Corruption of Foreign Public Officials Act, making bribery overseas illegal. But that is one of Canada’s only laws governing Canadian corporate behaviour overseas.

Nonetheless, this doesn’t mean Canada is sitting idly by on the sidelines. If corporate accountability crusader Ed Broadbent wins a seat in Ottawa in the upcoming election, he is expected to spark a lively debate in House of Commons on this subject (see ‘The Return of the Ed’ article in this issue).Greathead emphasizes that he doesn’t “want to make it sound like Canada is lagging behind on this.” Rather than create domestic laws [a.k.a. ‘hard laws’ as they are—at least in theory—enforceable], Canada lends support to international legislation [referred to as ‘soft laws’ as they are difficult to enforce] such as the UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights and the OECD Guidelines for Multinational Enterprises, in hopes these regulations will catch on. Another international initiative with Canadian support is the International Labor Organization’s Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy. The International Criminal Court is also making noise on the topic.

While some, such as human rights lawyer Georgette Gagnon in the paper Deconstructing Engagement, argue that stronger national laws are more effective, pushing for international guidelines is not a bad idea. By moving the decision-making on what is and isn’t allowed out of the domestic legal system and into an international landscape, national sovereignty is maintained. And, if the UN, OECD, or ILO guidelines gain teeth through the improvement of enforcement mechanisms (including a supportive legal framework from national governments), they have the potential to be quite influential.

Corporate accountability campaigners argue that MNCs already enjoy legally enforceable market rights under the WTO and NAFTA, and it is time to enact similarly enforceable labour and environmental standards, whether they flow from the WTO, NAFTA, UN, OECD or ILO. This also happens to be a line that Democratic Presidential Nominee John Kerry has taken to the hustings as of late. Across the pond, in the UK, a group called CORE (www.corporate-responsibility.org) is seeking to introduce the key principles of social and environmental reporting, directors duty of care and company liability through legislation. The CORE Parliamentary Bill—Performance of Companies and Government Departments (Reporting) Bill—presents a comprehensive set of corporate responsibility ‘asks’ supported by over 300 MPs, across all parties. CORE maintains that “without consistent standards it is hard for more responsible corporations genuinely working towards corporate responsibility to compete with ‘free-riders’ who are not.”

Back to the ‘soft law’ side, the OECD’s Guidelines for Multinational Enterprises, most recently revised in June 2000, are gaining recognition as a powerful legal tool. The Guidelines state that MNCs should “contribute to economic, social and environmental progress with a view to achieving sustainable development,” and outline policies regarding financial disclosure, employment and industrial relations, the environment, bribery, consumer interests, science and technology, and competition. While not without their faults, these Guidelines are well respected, and have a defined enforcement process. Each of the 29 OECD and 4 non-OECD countries that have endorsed the guidelines have a national contact point (NCP)—a human being who will accept complaints about companies breaking the rules. The NCP will review the complaint, bring it to the attention of the company, and facilitate a resolution. For example, when the UN Expert Panel Report on the Illegal Exploitation of Natural Resources in the Democratic Republic of Congo released a report in 2002, it alleged that 85 companies operating in the DRC (including five Canadian ones) had contravened the guidelines. This triggered action on the part of the named companies and governments where the companies were based. A more recent UN report seems to have deliberately adopted a more conciliatory and less straightforward criticism.

Another example of OECD Guidelines at work: In Zambia in 2001, a large group of former miners, laid off when a state company was sold to Canadian/Swiss company First Quantum, were in danger o  being evicted from company land. First Quantum maintained that it had no responsibility to these people, since the privatization agreement said that the ‘squatters’ would be removed by the government. But Oxfam Canada sent information from the field to the Canadian NCP (Vernon MacKay, a civil servant with DFAIT) that detailed the ways in which First Quantum had violated the OECD Guidelines. MacKay received the information from Oxfam, presumably brought it to the attention of First Quantum, and, after six months of sporadic negotiations, First Quantum reached a  agreement with the ex-miners association, allowing them to stay.While it is still unclear whether or not the official complaint launched by Oxfam played a role in achieving the settlement, it is hard to imagine it didn’t have some influence in the proceedings.

But, for all the power of international initiatives, serious barriers to corporate accountability remain. Richard Meeran, a lawyer who won compensation for South African workers with asbestos-related diseases in a British court last year from UK-based corporation Cape Plc, points out that penalties for corporate misbehaviour are still negligible. Simply put, fines are not high enough to constitute the kind of threat that would make companies sit up and pay attention.What’s more, while MNCs often suggest a case be tried in the country where the MNC is operating, the host country may be reluctant to try a MNC because of a legitimate fear of losing future foreign direct investment. The host country’s legal system may also lack required skills and experience. The barrier to trying cases can be boiled down to the legal doctrine of forum non conveniens, which is Latin for whose jurisdiction is applicable in a case. Where do you have the trial when the case involves several nationalities, countries, and MNCs? Mr. Meeran’s achievement was that he was able to convince a British court that the Asbestos trial should take place at home in the UK where the parent company—having considerable control over the operation of its subsidiary—was headquartered. The trial did not reach the final stage as an out-ofcourt settlement was reached.

Anna Cederstav, program director at the Interamerican Association for Environmental Defense, has a different perspective. She points out “there is always the court of public opinion…as well as the court of investors.” Consumers are increasingly interested in purchasing products from companies with upstanding human rights and environmental policies. Investors are increasingly wary of putting money towards companies that may be involved in social violations. Without resorting to legal tools, the financial power held by the consumer-investor combination may be enough to encourage companies to confront social obligations.

The interaction between institutional investor Real Assets and Canadian oil company Enbridge illustrates the point. In November 2001, Real Assets, concerned that Enbridge’s almost 25 per cent stake in the OCENSA oil pipeline consortium in Colombia put Enbridge at risk of becoming embroiled in a human rights scandal, filed a shareholder resolution noting their concern. After many long discussions, Enbridge “promulgated a new policy that commits the company to respect human rights and obliges all employees and contractors to reject violence and to avoid associating with any of the illegal armed groups fueling Colombia’s civil war.” While the risks that come from operating in a war-torn environment remain, progress took place and Real Assets is satisfied.

A number of legal mechanisms for holding MNCs accountable for their actions in developing countries are being implemented. From domestic law to international regulations, the trend towards more and better legislation is real. Which Canadian companies have something to fear? While Joan Kuyek of Mining Watch Canada says,“quite frankly, there is very little in Canada to hold MNCs accountable for their actions overseas,” others suggest that a number of companies in the extractive industries ought to be watching their backs. While Greathead is hesitant to name specific companies, he proclaims that “anybody who is manufacturing in countries where worker rights are not generally respected, like China, or any company that is involved in extraction of oil or minerals in politically unstable areas or in parts of the world where corrupt governments steal oil revenues and don’t share them with civil society—and there are a lot of Canadian companies doing that—is capable of being drawn into the crosshairs of human rights critics and campaigners.” Ian Bragg, an analyst with Michael Jantzi Research Associates, names Encana, Nexen, Canadian Natural Resources, and Enbridge as companies with the potential for exposure to risky situations, but counters by saying that “generally the Canadian record has been pretty good, especially when you compare them to the big ones in the US.”

Just as the outcome of Doe et al. v. Unocal Corp. remains to be seen, the future of legal mechanisms for holding multinationals accountable for their actions in developing countries is uncertain. While many different tools to guide corporate behaviour proliferate, only time will tell whether it is domestic laws, international legislation, public opinion, investor concern or a combinatio  of all of these, which ultimately encourages MNCs to confront their environmental and social responsibilities.

The full court press is on at the homefront. Already, a company calling card that beckons bad corporate citizenry is a quick way to close the door on domestic business opportunities. Conversely, a calling card that beckons good corporate citizenry is a requisite to get in on many of the best deals. The day may not be far off when, like a certain credit card, companies just can’t afford to leave hom  without it.

Laura Bogomolny is a researcher/reporter for Canadian Business magazine.