Defining and implementing human rights standards industry by industry

Chapter 4

Defining and implementing human rights standards industry by industry

This chapter analyses multi-stakeholder initiatives (MSIs) as a new governance form for human rights. When states fail to provide basic rights, collaborations between private actors, and sometimes public and private actors, have in many key industries become the default response to regulating corporate human rights conduct.

Dorothée Baumann-Pauly, Justine Nolan, Sarah Labowitz and Auret van Heerden first explore the MSI model and its current status. This is followed by a series of case studies of MSIs in different industries by Auret van Heerden (manufacturing), Michael Samway (information and communication technology), Scott Jerbi (extractives) and Anne-Marie Buzatu (private security contractors). Each of these chapters points to the potential and the challenges of this new governance form.

Michael Posner then highlights the current developments in the agriculture sector, a key sector in which no overarching MSI has formed yet. To conclude the chapter, Joanne Bauer describes a more recent initiative in the agricultural sector developed by the Coalition of Immokalee Workers.

Section 4.1

Setting and enforcing industry-specific
standards for human rights: the role of
multi-stakeholder initiatives in regulating
corporate conduct

Dorothée Baumann-Pauly, Justine Nolan,
Sarah Labowitz and Auret van Heerden

1 Introduction

Globalization creates governance challenges that are testing the limits of state-based systems of global business regulation.¹ Voluntary, multi-stakeholder initiatives (MSIs) that include a mix of private (and sometimes public) actors have emerged to address the governance gaps that exist when transnational companies (TNCs) conduct operations in states that cannot or will not fulfil their obligations to protect the rights of their own people.

In the absence of other viable regulatory options, particularly in developing country markets that are increasingly important for global companies, MSIs have become a default response to business and human rights challenges. For example, after the tragic collapse of the Rana Plaza complex in Dhaka, Bangladesh, over 200 Western brands formed two collaborative initiatives to address the governance gap in the context of workplace safety.²

Over the last two decades, MSIs have formed across different business sectors – from telecommunications to apparel to private security contracting – and appear to be an enduring feature in regulating global corporate conduct on human rights. While MSIs are increasingly recognized as institutions that respond to and shape the global governance landscape,³ there is still a lack of clarity about the factors that potentially make MSIs a legitimate governing force when it comes to business and human rights.⁴

MSIs typically form in moments of crisis affecting a particular industry – situations in which corporations are under pressure to respond to public human rights allegations that no actor alone can effectively address. Their origins in industry-specific crises often mean that the players in each emerging MSI may ‘reinvent the wheel’ when it comes to developing the parameters for the structure, governance, funding and activities of the new initiative. Subject-matter experts negotiating the formation of a new MSI do not usually possess expertise about MSIs broadly and their role in filling governance gaps. There is a lack of accessible research that examines MSIs as an emerging norm of global governance.

In this introductory chapter, we provide an overview of the typology and history of MSIs that have emerged over the past two decades. Within this typology, we focus our analysis on those MSIs that serve a governance function by setting and enforcing standards among competitors in a particular industry.

2 Typology of MSIs

2.1 Definition and typology

There is no single definition of what constitutes an MSI. The term ‘multi-stakeholder initiative’ is often used to refer to voluntary initiatives where two or more stakeholders cooperate to address some area of sustainability, corporate social responsibility (CSR), the environment and/or human rights. Such stakeholders include some combination of companies, industry associations, non-governmental organizations (NGOs), trade unions, government agencies, investors, academics and international organizations.

Despite the proliferation of initiatives that could be labelled MSIs, there is currently no widely acknowledged typology of MSIs. Introducing criteria by which MSIs can be distinguished is an important step in identifying and analysing those initiatives that have the potential to fill governance gaps. While there is a wide range of initiatives that fall under the broad heading of ‘MSI’, our analysis focuses on those that have the potential to effectively address governance gaps and regulate corporate conduct in markets where governments cannot or will not protect human rights.

By no means do all MSIs aim to achieve this objective. Some MSIs convene stakeholders across industry, civil society and government to broadly promote principles of sustainability, or to provide a forum for companies to share best practices and self-report on their sustainability activities. The United Nations Global Compact, for example, includes more than 8,000 corporations, in addition to governments and labour and civil society organizations.⁵ While it includes multiple stakeholders and works to encourage business to adopt policies related to sustainability and social responsibility, it does not seek to regulate their conduct by setting standards, monitoring implementation of the standards, assessing overall company performance or issuing sanctions for non-compliance. We refer to this subset as ‘best-practice sharing’ MSIs.

There is another subset of MSIs devoted to certification. These initiatives, which we refer to as ‘certification MSIs’, do assess performance against standards, but the scope of their assessment is focused on individual suppliers in a TNC’s supply chain rather than the multinational buyer company itself. For example, the Forest Stewardship Council’s (FSC) forest certification programme assesses individual farms’ compliance with the FSC forest management standard.⁶ This can be aggregated to a chain-of-custody certification⁷ for a global retailer or brand. Similarly, Social Accountability International (SAI) assesses and trains individual factories in the manufacturing supply chains of large multinational brands and retailers against its SA8000 standard for decent work.⁸ Both of these initiatives are multi-stakeholder in nature and include representatives from industry, trade unions and civil society organizations. TNCs are involved in setting standards and promote their membership in these organizations, but the conduct of TNCs is not governed by the certification scheme; rather it is suppliers’ conduct that is subject to certification.

The subject of our analysis is a third category of MSIs: voluntary initiatives that seek to govern the human rights conduct of TNCs in their global operations by creating binding and enforceable rules⁹ for groups of competitor companies in the same industry. Bernstein and Cashore define these initiatives as ‘deliberative and adaptive governance institutions designed to embed social and environmental norms in the global marketplace, that derive authority directly from interested audiences, including those they seek to regulate, not from sovereign states’.¹⁰ We refer to this type as ‘human rights governance’ MSIs.

2.2 Alternative regulatory approaches and the case
for mSIs

Before moving to a discussion of industry-specific MSIs that seek to govern the human rights conduct of corporations, it is important to briefly consider the legislative or voluntary regulatory alternatives.

Legislation by home or host countries that aims to regulate the human rights impact of TNCs has many potential benefits including providing binding rules, government oversight of corporate conduct and the potential to ‘level the playing field’.¹¹ Legislation, however, often also lacks the specificity that may be required to meaningfully constrain corporate behaviour. Most existing legislation in this area simply asks for disclosure of corporate practices, without setting a public reporting and evaluation standard that would enable consumers, regulators or investors to compare the performance of one company against another.

For example, in the United States (US), s. 1502 of the Dodd–Frank Wall Street Reform and Consumer Protection Act¹² imposes a new reporting requirement on publicly traded companies that manufacture products using certain conflict minerals. Under s. 1502, companies must report to the US Securities and Exchange Commission on whether the sourcing of the minerals originated in the Democratic Republic of Congo and bordering countries. This, in essence, requires TNCs to take on dual roles as both the ‘regulatee’ and ‘regulator’ of its supply chain and institute adequate ‘due diligence processes’ to ensure its reporting is accurate.

A recent study shows that such legislative reporting requirements have had limited impact and only ‘7% of companies [are] in strong compliance based on the level of due diligence measures that companies have reported in their 2014 Conflict Minerals Reports’.¹³ Reporting and disclosure do not, by themselves, result in accountability. Such reporting requirements would benefit from clear industry-specific metrics and a framework that allows external stakeholders to evaluate corporate compliance with standards and creates a mechanism for sanctioning or correcting non-compliance.¹⁴

The timeframe for negotiating legislative text is also often an issue. It is not a process that can be established spontaneously, for example, to respond to a particular human rights crisis. Similarly, the process that has started around the concept of developing a treaty on business and human rights has no defined timeline and is likely to be lengthy. The time taken to develop legislative approaches – either domestically or internationally – is not a reason to discredit such processes, but it does highlight the need to ensure alternative mechanisms are in place in the interim. MSIs are one such alternative and are useful not only as a stop-gap measure but also as a regulatory mechanism that is likely to have greater industry-specific resonance even if such legislation is developed.¹⁵

In contrast to legally mandated human rights due diligence, voluntary CSR initiatives, like the United Nations (UN) Global Compact,¹⁶ are particularly popular with companies. They give corporations visibility as being committed to human rights while providing ample flexibility in terms of the actual implementation process. Such initiatives are based on broad principles and while these may assist in raising awareness for specific issues (for example, human rights), they are generally insufficient for regulating corporate conduct.¹⁷ Voluntary CSR initiatives are not set up to provide effective enforcement and oversight mechanisms.¹⁸ For example, the principal accountability mechanism of the UN Global Compact to date is an annual mandatory reporting requirement. By participating, companies agree to incorporate the principles in their day-to-day operations and issue an annual public Communication on Progress, which reports on their progress in implementing the 10 principles. A failure to report could eventually lead to the expulsion of the company from the Global Compact.¹⁹ Indeed, between 2008 and 2012, the Compact delisted over 3,000 companies due to corporate participants’ failure to even meet this basic reporting requirement.²⁰ Delisting is a crude instrument and it does not help to assess the actual status of implementation of remaining participants.²¹ The type of transparency that voluntary CSR initiatives such as the UN Global Compact provide does not significantly contribute to greater corporate human rights accountability.

Similarly, since the adoption of the UN Guiding Principles on Business and Human Rights²² (Guiding Principles) in 2011, many companies have begun to assert their compliance with the principles through voluntary reporting, in their sustainability reports or other reports devoted specifically to the Guiding Principles.²³ In this context, companies often refer to themselves as being ‘on a journey towards implementing human rights’.²⁴ While the implementation of human rights policies and procedures is an ongoing process, the notion of an individually defined ‘journey’ is a clear example of the limits of voluntarism. In this framework, companies are not required to provide a clear roadmap of the efforts that they are undertaking or to ensure that other companies in the same industry have a common understanding of the journey ahead and travel on the same path, according to the same rules. The human rights issues, the responses and the metrics or indicators of progress are left to individual companies to define and disclose. This produces a relativism that can lead to confusion and dilution of the notion of ‘respect’ for human rights.

Industry-specific MSIs that collaboratively design standards and monitoring mechanisms may compensate for some of the shortcomings posed by either by a purely legislative or voluntary approach:

• Industry-specific MSI processes integrate industry expertise to define concrete and industry-appropriate standards that create a level playing field for all companies in one industry context. Consensus building around a common code in the formative stage of an MSI is not easy. However, given the public pressure to which participating parties are generally exposed, agreement is still likely to be reached faster than legislation can be enacted.

• Industry-specific MSI processes can couple rigorous standards with monitoring mechanisms to which every member must commit. Membership thus hinges on agreement with accountability mechanisms and thus effectively rules out freeriding.

• Industry-specific MSIs that, based on common standards, define benchmarks against which the implementation status can be assessed ensure that progress can be tracked and company performance can be measured and compared with industry peers. Comprehensive reporting based on agreed indicators can enable public accountability of company performance.

If MSIs are to fill human rights governance gaps, they must be able to govern or regulate corporate conduct in their form and function. Broadly speaking, governance includes three primary functions: legislative, executive and judicial.²⁵ When they work well, industry-specific, standards-based MSIs support these functions by concretely defining human rights standards in a specific industry context; operationalizing the standard into measurable benchmarks that allow for independent and public assessment of a member company’s performance against the standard; and establishing processes for sanctioning non-compliance and providing access to remedy.

The MSIs that exist in different sectors perform these functions with varying degrees of rigour. Before turning to a discussion of how human rights governance MSIs organize themselves, the following presents a brief history of the evolution of MSIs over the last two decades. This history includes best-practice sharing and certification initiatives as well as the human rights governance MSIs that are the focus of this chapter:

• The Rainforest Alliance emerged in the late 1980s as a response to the impact of business on the environment and the perceived lack of regulatory response. It was followed by the Forest Stewardship Council in 1993, which originated in the United Kingdom when the World Wide Fund for Nature developed a code of conduct in partnership with timber traders, who agreed to purchase sustainably managed and certified forest products.

• Between 1993 and 1998 a number of diverse initiatives emerged, including the Marine Stewardship Council (1997), Social Accountability International (1997) and the Ethical Trading Initiative (1998).

• In 1996, in response to public concerns about sweatshop practices in the apparel industry’s global supply chain, the US government served as a catalyst for the creation of a new MSI called the Fair Labor Association (FLA), which established a code of conduct for the apparel industry.²⁶

• In a series of resolutions adopted from 1998 to 2005, the UN Security Council condemned the sale of conflict diamonds from Angola, Sierra Leone, Liberia and Côte d’Ivoire and called for the creation of a voluntary regulatory body for the diamond industry, which became the Kimberley Process.²⁷

• In 2000, following a proposal from Secretary-General Kofi Annan to the World Economic Forum, the UN Global Compact was launched as a multi-sector voluntary corporate sustainability initiative intended to provide a ‘leadership platform’ for developing socially responsible corporate policies and practices.

• As it was leaving office at the end of 2000, the Clinton administration launched a set of Voluntary Principles on Security and Human Rights (Voluntary Principles) intended to set standards for security around extractive operations in the energy and mining sectors.²⁸ The Obama administration reinvigorated the initiative beginning in 2010, leading to its formal incorporation as a non-profit entity and a process to establish voluntary implementation and evaluation guidelines.

• Following media exposés of trafficked children forced to work in cocoa production in Côte d’Ivoire, US Congressional Representative Eliot Engel introduced an amendment to the 2002 Agricultural Appropriations Bill for funding to develop ‘slave free’ labelling requirements on cocoa products. Cocoa companies stopped passage of the bill by promising to adopt voluntary standards, which became the International Cocoa Initiative in 2002.

• Beginning in 2006, Yahoo!, Google and Microsoft joined with human rights groups, academics and social investors to form the Global Network Initiative (GNI), which was launched in 2008. The initiative aims to provide a set of global principles that address free expression and privacy issues on the Internet. The GNI completed its first assessments of the three founding companies in 2015.²⁹

• The International Code of Conduct for Private Security Providers (ICoC) was launched in 2010. It arose in response to the perceived impunity of private security contractors operating in conflict zones, such as a 2007 incident in which Blackwater (a private security contractor contracted to guard a military convoy) opened fire in Nisour Square in Baghdad, killing 17 people and injuring 24 others.³⁰

Subsequent chapters present in-depth analysis of several of these MSIs at different stages of development. Here, we present a three-part framework concerning the governance functions of MSIs that seek to regulate corporate conduct on human rights: (1) setting standards; (2) enforcement; and (3) sanctioning non-compliance and providing access to remedy. We also discuss operational challenges MSIs face in their efforts to fill the governance gap and regulate the human rights effects of TNCs.

3.1 Setting standards, making rules

The challenges that MSIs are established to address generally arise in an industry-specific business context. For example, in 2006, Google, Yahoo!, Cisco and Microsoft came under congressional scrutiny as a group for their activities in facilitating censorship and surveillance in China.³¹ The GNI was born out of recognition that all companies in the information and communication technology (ICT) industry would face similar challenges when seeking to do business in countries where governments constrain the free expression and privacy rights of their own citizens. While the US Congress convened several hearings on the subject and drafted the Global Online Freedom Act of 2013, it was not able to enact legislation to govern corporate conduct in the sector.³² One of the criticisms of the draft legislation was that it did not reflect the rapidly changing business realities of the companies it sought to regulate. The formation of the GNI was a way to develop industry-specific standards and implement guidelines that could adapt to a rapidly evolving sector.

The first task of the stakeholders that formed the GNI – and one that applies to any newly formed MSI – was to negotiate a standard that applies to all member companies and that reflects the specific challenges of their industry context. One of the advantages of MSIs is that they level the playing field by identifying common standards, rooted in existing international instruments and norms. For example:

• Global Network Initiative:

• Voluntary Principles on Security and Human Rights:

However, the combination of utilizing these ‘soft-law’ standards and enforcement by private actors attracts reasonable criticism around the potentially selective nature of the standards monitored and the perennial problems of leaving the ‘fox guarding the hen house’.³⁶ In some cases, the standards monitored by some MSIs set a lower bar than that required by local law³⁷ and some initiatives lack independent auditing and transparency.³⁸ Some of the codes that have multiplied in the last three to four decades exhibit these types of problems.

Negotiating the standard, or what might be called the ‘constitutional’ phase in the development of an MSI, often takes significant time. The origins of the FLA were in the Apparel Industry Partnership convened by the Clinton White House in 1996. The FLA Code was adopted three years later in 1999.³⁹ Similarly, negotiations around the GNI principles began in 2006 and were adopted in 2008. Over the course of 2014 and 2015, GNI participants have been renegotiating the standard with a group of telecommunications companies to apply the GNI principles to them.

As the subsequent chapters on the experience of individual MSIs illustrate, one of the key challenges during this stage is to build trust among competitor companies and other stakeholders. Many of the organizations that participate in MSIs are not accustomed to the kind of cooperation required to set rules for corporate conduct. In addition, the negotiation is conducted with stakeholders from civil society, academia and sometimes governments. These players do not necessarily have experience sitting at the table with companies in a cooperative, rule-setting context.

A healthy degree of tension among the different stakeholders can help maintain the rigour that makes MSIs appealing to the different stakeholders.⁴⁰ But arriving at that healthy tension – a point where companies and other stakeholders can cooperate while preserving their core interests – often takes place over a series of time-consuming and difficult negotiations during which time participants work towards an emerging shared vision for the organization.