Chartering Sustainable Transnational Corporations

1. Chartering Sustainable Transnational Corporations Susan L. Smith Professor of Law Willamette University smiths@willamette.edu

2. The Challenge: find a way to tame a deranged beast – a means to transform TNC into sustainable corporations Remember that corporations were originally recognized in law to serve the public interest. But now, especially TNC, have distorted goals.We now are willing to allow TNC to harness the vast bulk of global financial wealth in service of two far different goals: 1. maximizing short-term corporate profits 2. maximizing wealth of corporate managers

3. The Character of the Beast: TNC Dominate the Global Economy • Incredible aggregation of unimaginable amounts of extremely fluid, geographically mobile capital • 300 largest global corporations hold 25% of world’s productive assets – physical plant • 1000 largest global corporations account for 80% of world’s industrial output; 70% of world trade • 25% of global GDP; extraordinary revenues and profits (nearly $400 billion in top 2, over $40 billion in top 1) • Jobs – directly employ 90 million employees • Technology – hold 90% patents

4. 1. direct influence on national governments in home and host countries: subsidies, relaxed regulatory standards, low cost access to public natural resources 2. fostered and profited by the Washington consensus of neoliberal IFI policies supposed to attract private capital to developing countries Stabilize fiscal and monetary policy – cut services Privitize government owned enterprises – charge fees or raise prices Reduce or eliminate economic regulation – raise prices Minimize social and environmental regulation – reduce protection Change corporate governance towards share-holder dominated governance – decrease influence of civil society and labor The Character of the Beast: TNC Hold Dominant Political Power

5. The Victims: TNC Actions Have Severe Ecological and Social Effects • Advertising creates excessive demand for luxury products • Market power allows excessive profits on necessities sold • Promote free trade and corporate welfare (with devastating impacts, e.g., on subsistence agriculture • Delay control of global warming through funding of denialist policy and “scientific” groups -- and corporate lobbying Mexico City BIOGRAPHY.doc • Build bad projects in sensitive ecosystems – dams, mines, pipelines • Cause the bulk of industrial pollution • Allow suppliers to rely on child labor and sweatshops • Dislocate and further impoverish indigenous peoples and the poor • Participate in bribery and corruption • Allegedly participate in terrorizing, torture, and murder of opponents • Encourage oil and other wars

6. Fossil Fuel Energy, Deforestation, and Other TNC Actions Help Warm the World

7. Arctic Ice Melts and Polar Bears Face Extinction

8. More Fierce Hurricanes and Other Extreme Weather

9. Greenland Melts

10. ExxonMobil: Valdez Oil Spill ExxonMobil has fought a 20 year battle to minimize responsibility

11. Massive Dams Builtto Provide Irrigation for Mono-crops and Generate Industrial Power

12. Car Manufacturers Suppressed Electric Car Technology

13. Bulldoze Nature for Mining and Other Resource Development

14. Produce Oil and Gas in Protected Areas

15. Dislocation of Indigenous Peoples and the Poor

16. The Chairs and the Thorns:Largely failed attempts to control TNC actions • Corporate self-discipline (traditional voluntary CSR efforts- inadequate, misleading, and often misdirected) • Market discipline (limited effect of boycotts and green labeling; refuse to allow firm failure/losses for bad business decisions; shareholder action ineffective; investor and consumer choice create a small niche for responsible for-profits) • Education promoting envt’l protection/social justice (promising but long-term) • Tort litigation – nuisance, trespass, negligence, strict liability, product liability – doctrinal weakness, high organizational and litigation costs, inadequate remedies • Environmental, health and safety regulation – lack of political will, poor design, corruption • Human rights litigation – limited direct applicability, difficult and costly litigation, remedies

17. The Challenge Simply Restated How do we fundamentally redirect our social wealth currently invested in for-profit corporations, especially transnational corporations, to create ecologically sustainable and socially just societies? How do we tame the deranged beast?

18. Chartering Sustainable TNC: A Scalpel, not a Sword • As a condition of doing transnational business, TNC must be chartered as sustainable corporations regulated by an international commission • The charter creates a commitment to environmentally and socially responsible corporate conduct enforceable against the corporation, its directors and officers • The charter might also include other provisions to improve long-term economic viability (way beyond my competence)

19. Why Trans-National Corporations?: the largest and most facile beasts! • Magnitude of economic activity, political power, and environmental and social impacts • Difficult to effectively holding TNC responsible, e.g. contaminated mining sites, due to financial resources and geographical mobility • A just target – TNC have availed themselves of benefits of neoliberal policies designed to foster globalization

20. Why corporate law?: the brain of the beast • Realign corporate priorities with social values in a fundamental way – reducing friction between regulatory system and corporate internal imperatives • Appropriate place to impose duties on corporate directors and officers – again harmonizing corporate law and other law • Minimize interference with national sovereignty environmental and social regulations have natural geographic and culture variability not as essential to corporate law • Remedies go to heart of corporate ability to transact transnational business – the source of characteristics of TNC that make them so difficult to control

21. Why regulate at the international level?: A scalpel, not 200 pins • NOWHERE TO RUN, NOWHERE TO HIDE!!! cannot avoid enforcement • Race to the bottom in corporate law

22. Chartering Sustainable TNC: Four key design features of this scalpel • Compliance with sustainability law and agreements • Corporate sustainability strategy • Monitoring and reporting • Enforcement

23. Chartering Sustainable TNC:Compliance with Law The charter requires directors and officers to assure and certify compliance with: • all binding and applicable international, national, and sub-national laws (home and host country) concerning sustainability (e.g. environmental, health, safety, wage laws) • all sustainability-related contractual agreements with governments or others

24. Chartering Sustainable TNC: Corporate Sustainability Strategy The charter commits the directors to adopt a corporate sustainability strategy, in accordance with implementing regulations. Strategy: • defines environmentally and socially responsible corporate conduct beyond compliance to which the corporation commits • explains connection to long-term corporate profitability • identifies specific operational indicators for all aspects of sustainability affected by corporate operations • creates an implementation plan, specifying resources, programs, projects and processes to implement the strategy

25. Chartering Sustainable TNC: Corporate Sustainability Strategy – Process Corporate Sustainability Strategy • Draft strategy made publicly available before final adoption by directors • Opportunity for Commission, governments, NGOs, and public to review and submit comments • Final strategy must conform to implementing regulations and respond to comments • Periodic review and revision

26. Chartering Sustainable TNC: Monitoring and Reporting The charterrequires D & O to assure accurate compliance monitoring and reporting: • Binding and applicable law and agreements • Comparative standards • Home country laws imposing higher standards than host country laws where TNC operates • Non-binding international and national sustainability standards • Corporate sustainability strategy Corporate Sustainability Report

27. Chartering Sustainable TNC: Enforcement of charter law requirements The international commission: • investigates violations upon receiving credible information from anyone that a TNC violated the charter law by failing to (1) file a conforming charter, (2) prepare, review or revise a conforming corporate sustainability strategy, (3) accurately monitor and report compliance with sustainability law and agreements, non-binding sustainability standards and its corporate sustainability strategy • takes enforcement action to impose sanctions if the investigation concludes there is probable cause to believe that the TNC committed a violation • provides an administrative hearing to determine whether the TNC committed a violation • impose significant sanctions when the commission determines the TNC committed a violation: large administrative penalties, total or partial suspension of privilege to transact transnational business for period of time, and a transnational corporate death penalty. D & O personal liability for knowing violations or deliberate ignorance of violations.

28. Chartering Sustainable TNC: Enforcing the compliance with law obligation • TNC must implement a compliance agreement approved by gov’t/parties and Commission in the event of self-reported failure to comply • TNC failing to (1) enter into timely compliance agreements or (2) implement the compliance agreement are subject to sanctions similar to other violations

29. An Example: TNC Interfere with Ability of the Poor to Obtain Water • TNC divert water that could be used for domestic uses and subsistence agriculture to industrial mono-culture and industry • TNC support development of massive water storage projects – dams – to provide their water and energy needs, thus imposing massive environmental damage and social dislocation • TNC contract or undertake to provide water services in developing countries at rates unaffordable by the poor • TNC acquire (i.e. monopolize) scarce water supplies for production of soft drinks and bottled water

30. Impact of TNC Water Actions Contribute to lack of availability of safe drinking water for poor in developing countries This kills 1.8 million children every year: 20 min = 80+ children

31. Possible Use of the Charter Provision to Prevent TNC Actions Limiting Water Availability • Opportunity to influence corporate operations during adoption of corporate sustainability strategy • Required to comply with host country laws regulating water service provision and water acquisition and use • Required to monitor and report compliance with those laws • Required to monitor and report compliance with non-binding international law, perhaps including the international human right to water • Readily available remedy if TNC fails to comply NOT a substitute for perfecting international law; readjusting national priorities, improving national water management, or suppressing corruption; developing countries meeting their ODA commitments for attainment of the MDP; or indviduals with even $25 of disposable income to contribute to community based water, sanitation, and hygiene education projects. BUT it is necessary to prevent water from becoming the BLUE GOLD of the 21st century.

32. Additional Design Issuesand Practical Obstacles • Choosing directly applicable international obligations or application through harmonized domestic corporate law • Effective jurisdictional provision – other business entities, definition of transnational, floor on size? • Process and substance of implementing provisions for corporate strategies, monitoring and reporting, and enforcement • Fit into international structure – independent; tie to other independent organizations like WTO, ILO; UNHRC, UNESCO, other UN • Integrating requirements and sanctions with other international law – especially trade, labor, and human rights law • Securing high levels of national participation in convention • Assuring democratic control and preventing agency capture • Funding – through charter registration and renewal fees

33. A Window of Opportunity

34. A Window of Opportunity Due to corporate scandals and global financial meltdown: • A new Bretton Woods agreement restructuring international finance could include sustainable corporate design • US admissions of inadequate regulation as well as record low confidence in corporate integrity recognize the need for effective corporate regulation • U.S. enjoys new leadership with a fundamentally greater commitment to the poor and to the planet – and a different approach to dealing with other nations