OECD updates conduct guidelines for multinationals

The Organisation for Economic Co-operation and Development (OECD) agreed in May 2011 an updated version of its guidelines for multinational enterprises, which are among the main international standards for responsible business conduct in areas such as employment and industrial relations.

The OECD guidelines

The OECD is made up of 34 member countries, which include the UK and 20 other EU member states, Japan, the US and most other leading developed economies, plus emerging countries such as Chile, Mexico, and Turkey.

The OECD guidelines for multinational enterprises (external website), which were first issued in 1976, are a set of recommendations addressed by governments to companies operating in more than one country, setting out principles and standards for "responsible business conduct" on a range of issues. These include: employment and industrial relations; disclosure of information; competition; taxation; science and technology; combating bribery; protecting consumer interests; and the environment.

On employment and industrial relations, the guidelines set standards for employers in areas such as:

• employee representation, information and consultation;
• collective bargaining;
• preventing child and forced labour;
• discrimination;
• health and safety;
• employment and training of local workers;
• collective redundancies; and
• relocation of operations.

Observance of the guidelines by enterprises is "voluntary and not legally enforceable", but the Governments of OECD member states and other adhering countries are expected to implement the guidelines and encourage their use. As well as the 34 OECD states, eight other countries have signed up to the guidelines (Argentina, Brazil, Egypt, Latvia, Lithuania, Morocco, Peru and Romania). The guidelines apply to multinationals operating in or from the 42 adhering countries, which together represent around 85% of the world's foreign direct investment, according to the OECD.

The guidelines seek to act as an international reference point and instrument for promoting corporate social responsibility among multinationals. As the OECD notes, "although many business codes of conduct are now publicly available, the guidelines are the only multilaterally endorsed and comprehensive code that Governments are committed to promoting". The guidelines "both complement and reinforce private efforts to define and implement responsible business conduct".

Implementation procedures

Adhering governments must establish a "national contact point", responsible for promoting the guidelines, handling enquiries and contributing to the resolution of issues that arise relating to the guidelines' implementation in "specific instances". This is usually a government office. The UK national contact point (external website) is based in the Department for Business, Innovation and Skills.

According to procedural guidance accompanying the guidelines, when issues arise concerning implementation of the guidelines in relation to specific instances of business conduct, national contact points should help to resolve them. In practice, such instances are usually raised with contact points by trade unions or non-governmental organisations (NGOs) and most commonly relate to alleged failure to observe the guidelines on employment and industrial relations.

Generally, issues are dealt with by the contact point in the country where the issue has arisen, but further bilateral contacts may be pursued between contact points in adhering countries. The contact point in a host country where a multinational operates should consult with the contact point in the multinational's home country in its efforts to assist the parties in resolving the issues.

After making an initial assessment of whether or not the issues raised merit further examination, the national contact point should offer its "good offices" to help the parties involved to resolve the issues. Where no agreement can be reached on the issues raised, the contact point will issue a statement or make recommendations as appropriate.

The OECD Investment Committee is responsible for overseeing the overall functioning of the guidelines. It consults with the organisations representing business and trade union interests within the OECD - the Business and Industry Advisory Committee (BIAC) and the Trade Union Advisory Committee (TUAC) respectively - and with OECD Watch, an international network of NGOs. In the UK, the CBI is a member of BIAC and the TUC of TUAC.

Implementation in practice

According to the OECD's 2010 annual report on the guidelines, 224 requests to consider specific instances had been filed with national contact points since 2000. The UK contact point received 21 requests, the second-highest number after the US which received 26 requests. Of the 224 requests, 160 instances were taken up by national contact points and 138 had been concluded or closed by 2010.

Instances considered by the UK contact point since 2000 have related to the overseas operations of UK-based companies such as Afrimex (import/export), Anglo American (mining), BP (petrochemicals), British American Tobacco, G4S (business services), Unilever (household goods), Vedanta Resources (mining) and the UK operations of multinationals including BAE Systems (engineering), Peugeot (France, automotive) and Rolls-Royce (engineering). Cases of UK-based multinationals referred to contact points in other countries include Marks & Spencer (retail) in France.

For example, in March 2011, the UK contact point issued a final statement on a specific instance relating to alleged breaches of the OECD guidelines on employment and industrial relations involving British American Tobacco Malaysia Berhad (BATM), a Malaysian company controlled by the UK-registered British American Tobacco plc. The contact point concluded that BATM had not upheld the guidelines' standards by failing adequately to consult a local union about the reclassification of a number of jobs. To minimise the risk of committing the same breaches of the guidelines in future, the contact point recommended that British American Tobacco plc should encourage BATM to establish a permanent and regular process to consult and inform its employees on issues of mutual concern before key decisions are taken by management. This process should be endorsed by both management and employees (and their representatives, where they exist).

Updating guidelines

The OECD guidelines have been updated on a number of occasions since they were adopted in 1976. In 2009, the OECD launched a new review process, arguing that since 2000, when the guidelines were last updated, the "landscape for international investment and multinational enterprises has continued to change rapidly". The world economy has witnessed new and more complex patterns of production and consumption. Non-OECD countries are attracting a larger share of world investment and multinational enterprises from non-adhering countries have grown in importance. At the same time, "the financial and economic crisis and the loss in confidence in open markets, the need to address climate change, and reaffirmed international commitments to development goals have prompted renewed calls from governments, the private sector and social partners for high standards of responsible business conduct". These developments required further updating of the guidelines to "increase their relevance and clarify private sector responsibilities".

Consultations were held with BIAC, TUAC, OECD Watch, non-adhering countries and international organisations, and an updated version of the guidelines was adopted by ministers from all adhering countries on 25 May 2011.

Amended and new provisions

The updating process has strengthened the OECD guidelines in a number of areas. Most notably, the guidelines now include a specific chapter on human rights, calling on multinationals to respect such rights in all countries where they operate. Further, the revised guidelines clarify multinationals' responsibilities for business behaviour in their supply chains. Companies are also, for example, called on to: put in place appropriate "due diligence" processes to ensure that international standards are respected; combat bribe solicitation and extortion; and promote sustainable consumption.

With regard to employment and industrial relations, the highest-profile change is the insertion (at para.4b) of a recommendation that, in developing countries, multinationals should provide the "best possible" wages, benefits and conditions of work, related to the enterprise's economic position but at least adequate to "satisfy the basic needs" of workers and their families.

Another significant change is a strengthening of the provisions on worker representation and collective bargaining (paras.1a and 1b). Previously, multinationals were recommended to respect their employees' right to be represented by trade unions and other bona fide representatives of employees, and to engage in constructive negotiations, either individually or through employers' associations, with such representatives with a view to reaching agreements on employment conditions. Now, companies are also called on to respect workers' rights to: establish or join unions and representative organisations of their own choosing; and have unions and representative organisations of their own choosing recognised for the purpose of collective bargaining.

Other amendments include the following:

• The term "employees" has been replaced throughout by "workers" and formulations such as "workers employed by the multinational enterprise" and "workers in their employment". The aim is to include all workers who are in an employment relationship with the multinational enterprise, whether or not technically defined as employees.
• As well as applicable law, regulations and prevailing labour relations and employment practices, multinationals are now also called on to observe applicable international labour standards. These are the Conventions and other instruments adopted by the International Labour Organization.
   

   

  The highest-profile change is the insertion of a recommendation that, in developing countries, multinationals should provide the 'best possible' wages, benefits and conditions of work, related to the enterprise's economic position but at least adequate to 'satisfy the basic needs' of workers and their families.

   
• As well as not discriminating in employment and occupation on a range of grounds, multinationals are now also recommended (in para.1e) to be guided throughout their operations by the principle of equality of opportunity and treatment in employment. The discrimination grounds have also been widened to include "other status", alongside race, colour, sex, religion, political opinion, national extraction and social origin. An OECD commentary accompanying the guidelines states that "other status" refers to trade union activity and personal characteristics such as age, disability, pregnancy, marital status, sexual orientation or HIV status.
• Multinationals are no longer expected only to "contribute to" the effective abolition of child labour (para.1c) and the elimination of all forms of forced or compulsory labour (para.1d). They should also take "immediate and effective measures" to secure the prohibition and elimination of the worst forms of child labour as a matter of urgency, and "adequate steps" to ensure that forced or compulsory labour does not exist in their operations.
• The recommendation (in para.6) that multinationals should give notice to, and cooperate with, workers' representatives and relevant governmental authorities over changes in their operations now applies to changes that would have major "employment effects" rather than those that would have major "effects upon the livelihood of their employees".

The procedures for implementing the guidelines have also been strengthened. For example, national contact points should now, as a general principle, strive to conclude the investigation and assistance procedure within 12 months of a specific instance being raised. Delays in dealing with cases has been a frequent trade union criticism of national contact points. Further, the OECD and its Investment Committee have been given a greater role in promoting and implementing the guidelines.

"A new higher standard" for multinationals

The OECD secretary general, Angel Gurrí, commented on the adoption of the revised guidelines: "The business community shares responsibility for restoring growth and trust in markets. These guidelines will help the private sector grow their businesses responsibly by promoting human rights and boosting social development around the world." Hillary Rodham Clinton, the US Secretary of State and chair of the ministerial meeting that adopted the updated guidelines, said: "The OECD guidelines for multinational enterprises, developed in close consultation with both business and labour, set a new higher standard for how our companies should operate, including an important new chapter on human rights."

For employers, Winand Quaedvlieg, the chair of BIAC's international investment and multinational enterprises committee, said that the updated guidelines introduce "substantial new provisions" in certain areas such as human rights, due diligence, and supply chains. However, he stressed that "the nature of the guidelines remain unchanged, namely, that they are voluntary recommendations from governments to companies".

Quaedvlieg added: "Naturally, it will take time and effort for companies to become familiar with all of the complexities of the updated guidelines, and then to implement them, but the business organisations in BIAC are committed to fulfilling our role in supporting this implementation process. The OECD needs to do its part by working closely with governments in order to promote in non-adhering countries the introduction of [corporate social responsibility] standards comparable to the guidelines."

From a trade union perspective, TUAC stated that the updated guidelines contain a number of "positive new elements", including the chapter on human rights, the "unequivocal" application of the guidelines to suppliers and other business relationships, the broadened scope of the employment and industrial relations chapter, and the stronger rules governing the functioning of the national contact points. TUAC believes that these changes will "significantly increase the relevance of the guidelines and their potential to raise the standard of responsible business conduct in a global context".

TUAC called for prompt and full implementation of the revised guidelines by adhering governments and the OECD. According to the trade unions, governments must "first and foremost upgrade the structures and procedures" of their national contact points, and the contact points must "consign to the past their reputation for a patchy and often poor performance and operate to a higher common standard, building on the new principles of impartiality and predictability".

This article was written by Mark Carley, international editor.