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When businesses are bad, who you gonna call?

3 August 2015

Carly Avery, Investment Division, OECD Directorate for Financial and Enterprise Affairs

Most businesses are good. They pay their taxes, they create employment, they abide by the laws, and they generally contribute to the societies in which they operate. But unfortunately, this isn’t always the case. And when businesses behave badly, the human consequences can be devastating: factories collapse killing thousands; workers, often children, are treated like slaves; rivers, lakes, and even seas are rendered lifeless, and entire species are threatened.

In order to deal with cases of bad business behaviour such as these, we would need a multilateral system where victims of this type of treatment could complain, and the person receiving the complaint would analyse it, see if it’s valid, alert all the parties involved, and sit down with them to help fix the situation. No, this isn’t some Disney film scenario with a dashing knight in shining armour swooping in to save the day. In fact, this is something that already exists: the National Contact Points (NCPs) for the OECD Guidelines for Multinational Enterprises.

The OECD Guidelines are the leading international standard for responsible business conduct for multinational enterprises wherever they operate in the world. They cover all areas of business ethics, including human rights, labour issues, environmental protection, anti-bribery, taxation, and science and technology. They operate on the expectation that businesses should not only do good, but that they should also do no harm. The Guidelines were first adopted in 1976 and today 46 governments have signed up.

With the Guidelines you can raise your hand and say “Hey, stop doing that to my fish!” and someone, an NCP, can do something about it. NCPs are the mechanism that reinforces how the Guidelines are applied. They are units that have been set up by every government adhering to the Guidelines and are there to help parties find a solution for issues arising from any alleged non-observance of the recommendations found in the Guidelines. This isn’t a legal process so NCPs focus on problem solving – they offer good offices and facilitate access to consensual and non-adversarial procedures (ex. conciliation or mediation).

So, everything is fine then, right? Well, not quite. Here’s a statistic for you: multinationals from countries that adhere to the Guidelines have $22.6 trillion invested around the world. The NCPs received 35 new cases in 2014. That means that there was one case for every $645 billion of foreign direct investment in 2014. That’s either a lot of very responsible multinationals or we’re missing something.

The natural conclusion is that not all instances of bad business conduct are being alerted to NCPs. Why? Simply put, NCPs aren’t visible enough. If President Obama can cite the Guidelines in terms of the US anticorruption agenda and yet “NCP” in the UK is better known as an acronym for UK National Car Parks, there’s a mismatch.

Governments need to up the stakes. If they gave more funding to this vital mechanism, NCPs could be more visible and live up to their potential.

G7 governments agree. In their 2015 statement they committed to strengthening “mechanisms for providing access to remedies, including the National Contact Points…” and encouraged the OECD “to promote peer reviews and peer learning on the functioning and performance of NCPs” while ensuring that their own NCPs “are effective and lead by example”.

Here are some of the problems increased funding could help fix:

  • Staffing issues: In 2014 only 15 of the 46 NCPs had an allocated budget and this impacts staffing. Few NCPs have staff solely devoted to the responsibilities of the NCP.
  • Communications deficit: currently only 57% of NCPs have or are working on developing a structured promotional plan.
  • Lack of transparency: NCPs are encouraged to report publicly on their activities but only 40% have put at least 1 annual report online over the past three years. [1]

With more staff, NCPs would be better equipped to handle the complaints they receive. With better communications they can promote Guidelines more widely, and with greater transparency they can build the vital element of trust.

If NCPs had more clout, companies would work even harder to protect and develop their reputations by pre-empting any complaints about the ways they operate. This in turn would contribute to growth that benefits individuals, and communities, as well as global aspirations such as the Sustainable Development Goals.

Countries-adhering-to-OECD-MNE-Guidelines

What’s the OECD doing in all of this? Since the most recent update of the Guidelines in 2011, the OECD has increased its work with NCPs to strengthen the grievance mechanism process to ensure that it delivers results. This includes peer-reviews and targeted communications support. The Chair of the OECD Working Party on Responsible Business Conduct has even launched a competition to find a better name for “NCPs”. If you have an idea, send me your suggestions by 30 September 2015.

As I said at the outset, bad business conduct exists, but we also have NCPs working hard to manage the complaints they receive, despite imperfections. And sometimes the NCPs get their Disney moment, like when the UK NCP provided mediation to help the WWF and Soco talk to each other and avoid drilling in Virunga National Park, a UNESCO world heritage site. Concrete change has to start somewhere, and the NCPs are part of the change for enforcing responsible business conduct happening around us right now.


Useful links

Read the brochure explaining the Guidelines

Find out more about the NCP specific instance process

Access the OECD Database of Specific Instances

[1] These three statistics are taken from the 2014 Annual Report on the Guidelines (OECD publishing, http://dx.doi.org/10.1787/mne-2014-en): Table 1.2, and pages 23 and 26.
Regarding NCP reporting: NCPs are required to report annually to the OECD Investment Committee and are encouraged to make their annual report public.

3 Responses leave one →
  1. Charles Kovacs permalink
    August 3, 2015

    Companies operate in countries and the countries that adhere to the OECD Guidelines for MNE’s have vast bodies of laws to regulate MNE’s and, indeed, all companies within their territory regardless of their ownership. Consequently, it is erroneous to assume that just because the NCP’s received only 35 new cases in 2014 MNE’s went unregulated. A more likely explanation for the paucity of new cases at the NCP’s is that if someone has a complaint about a company, he/she will file it with a national authority. This is logical especially since all of the adhering countries have functioning national instititutions.
    I would add that the OECD Guide Line states that it does not constitute law and adherence by states is not the same as the ratification of a treaty (treaty law usually becomes part of the national/municipal law). Since the Guide Lines sometimes go beyond national law, there is then the question of what a state is supposed to do when the Guide Line is violated, but national laws are not.

  2. ashish permalink
    August 12, 2015

    I agree with most of the content in the article but only 35 cases seems a bit suspicious. Although, we have to agree that most of the countries, even developing nations adhere to all policies and environmental destruction but rightly said there has to be more awareness about such issues and NCP.

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