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Major guidelines get a wash and brush up

July 2011

The OECD has formally adopted a revised text of its Guidelines for Multinational Enterprises – 10 years after its last key review. EP looks at what has changed

Broadened scope
The guidelines have been expanded to include all business links, not just investment relationships. The responsibilities of multinationals have been greatly extended to include subsidiaries, suppliers and other business relationships, and therefore a much wider group of workers.

New general principles
Enterprises should, according to the following new policies in the guidelines: always exercise due diligence in matters related to the guidelines; avoid causing or contributing to adverse impacts; try to prevent or mitigate an adverse impact where they have not contributed to that impact, when the impact is nevertheless directly linked to their operations. The latter will be particularly important to companies with large supply chains, and explicitly attributes indirect responsibility to them. There is also a new paragraph on ‘meaningful stakeholder engagement’ as part of proper due diligence processes.  

Human rights
There is a whole new section on human rights, specifying that enterprises should respect international and humanitarian law and avoid contributing to human rights abuses. Building on John Ruggie’s ‘protect, respect, remedy’ framework, the new section outlines the need for dedicated ‘human rights due diligence’, a policy commitment to respect human rights, and company provision for remediation processes. Hillary Clinton, the US foreign secretary, said the new section will help to ‘determine how supply chains can be changed so that it can begin to prevent and eliminate abuses and violence’.

Environment
The one significant change to the environment section is a requirement that businesses reduce and report on greenhouse gas emissions to deal with global climate change.

Reporting
The disclosure chapter has not been significantly updated, and specifically does not include a recommendation on country-by-country reporting. OECD Watch said the decision was ‘particularly disappointing’, and that the guidelines ‘will fall short of corporate transparency and disclosure developments’ in the US and Europe. There is, however, a new requirement on the reporting of remuneration policy affecting board members and ‘key executives’, and of information about board members, other directorships, and whether every board member is regarded as independent by the board.

Bribery and corruption
The guidelines now prohibit bribery entirely – indirectly and directly, giving or receiving. The name of the section has changed from Combating Bribery to Combating Bribery, Bribe Solicitation and Extortion. However, there is still no account of wider forms of corruption, which will be seen by many as another shortcoming against existing standards, such as the United Nations Convention against corruption.

Taxation
There is a significant addition to the tax section, which previously required a simple adherence to country laws. A new paragraph says: ‘Enterprises should treat tax governance and tax compliance as important elements of their oversight and broader risk management systems. In particular, corporate boards should adopt tax risk management strategies to ensure that the financial, regulatory and reputational risks associated with taxation are fully identified and evaluated.’

Employment
The guidelines newly stipulate that wages be ‘at least adequate to satisfy the basic needs of the workers and their families’, especially ‘where comparable employers may not exist’. Slight terminology changes now make it clear that the guidelines apply to a wide group of workers. There is also a new sentence urging companies to take ‘immediate and effective measures to secure the prohibition and elimination of the worst forms of child labour as a matter of urgency’.

National Contact Points
The role of NCPs has been clarified with new principles of impartiality for Contact Points dealing with complaints, and strengthened provisions on transparency, including in final statements (though ‘taking into account the need to protect sensitive business information’). There is also a call for stronger co-operation between home and host-country NCPs. Although some had hoped the new guidelines would specifically consider conflicts of interest and make particular disclosure requirements, the new NCP provisions are an advance on the previous guidelines.




Organisation of Economic Co-operation & Development | Global | Guidelines

Further Information
http://ethicalp.com/oecd2011
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