A largely unknown tool to discipline irresponsible MNCs

February 19, 2011

By Rijit Sengupta

Few are aware that developing countries adversely affected by conduct of Multinational Corporations (MNCs) can voice their concern and seek redress through a multilateral process. The Organisation for Economic Cooperation and Development (OECD) adopted Guidelines for Multinational Enterprises in 2000, which empowers any country afflicted (socially, environmentally or economically) by actions of MNCs to demand actions against such ‘irresponsible’ conduct.

42 governments, including all 33 members of the OECD (and 9 non-OECD countries) have agreed to observing these Guidelines for firms originating in or operating from their territories. Signatories have established National Contact Points or NCPs mostly within the Investment or Economy Departments in their Governments, to take cognisance of such corporate misconduct and issue statements in response. All countries (governments and civil society) that have been affected by adverse impacts of multi-national enterprises are encouraged to NCPs (based in the home country of those multi-national enterprises) of such misconduct, so that appropriate actions can follow.

In a recent case, on 25th January 2011, Amnesty International and Friends of the Earth filed a report alleging that Royal Dutch Shell Co. has been resorting to misleading propaganda to hide its inability to curb frequently occurring oil spills in the Niger delta. Shell has been exploring oil in this region (in Nigeria) for over five decades now. Its exploratory actions are reported to have had negative impacts on the environment and lives of the communities living in the proximity. Amnesty International and Friends of the Earth have asserted that Shell has violated certain principles of the Guidelines and actions should be taken (by the Dutch NCP) against the company.

The OECD Guidelines on MNEs recommend that companies abide by nine specific principles of responsible business conduct, by: respecting national development policies; through proper disclosure; contributing to employment and industrial relations; protecting the environment; curbing bribery; promoting consumer interests; fostering science and technology transfer; complying with national competition law; and by paying taxes. If firms are found having flouted these principles, civil society and governments can file complaints to the relevant National Contact Point (NCP) to initiate a process of investigation by that NCP.

The report filed by Amnesty International points to the fact that Shell has been found wanting on three principles – disclosure, consumer interests and environment. It remains to be seen how and what actions are ‘shelled out’ by the Dutch NCP. This report has been filed to the NCP established by the Dutch government, given that Shell is based in The Netherlands. The NGOs would be pushing to ensure that Shell ‘pays’ for the damages, if they are found guilty.

It should be mentioned here that since its adoption, 170 odd cases have been filed to NCPs of a number of signatories. In response, NCPs have issued statements after validating the activities of the companies in question. Although the Guidelines are soft laws and does not empower the National Contact Points to penalise firms that flout these guidelines, but it does have the potential of damaging the public image and goodwill of such a firm. So, firms do run the risk of having their images tarnished, in case the NCP investigation finds them on the wrong end of these Guidelines.

In the present era of globalisation, it is therefore essential that developing and least developed country governments and especially the civil society is oriented about the existence of these Guidelines. This is especially true given that a large number of extractive industries are based in resource-rich developing and least developed nations. Many poor country governments and their agencies struggle to find ways to take actions against MNCs, even after having quelled political undercurrents, which often prevent such actions from being taken. Apart from damages caused to the environment and society (communities), the Guidelines also cover actions that have adverse impacts on the economy, markets and consumers. These impacts are often not easily perceived and tend to be overlooked.

One of the unique features of the Guidelines is the fact that in addition to governments, civil society and or other parties can file reports against alleged irresponsible conduct of MNCs. Awareness about the existence of the OECD Guidelines and its provisions dealing with social, economic and environmental aspects can prove to be extremely useful in curbing corporate misconduct in developing and least developed countries. Civil societies in these countries (and indeed in other parts of world working in them) need to train themselves and orient others about these Guidelines and report their violations to relevant NCPs.

Sensitisation on and effective use of, these Guidelines and other such instruments can prove to be extremely useful in protecting the environment, the economy and citizen consumers from ill effects of irresponsible MNCs. It is time that more and more people know about them and their usage.

Rijit Sengupta Associate Director, CUTS International