Corporate Social Responsibility and the Law : Foley Hoag LLP

Looking back at 2010, there have been a number of significant legal developments in the field of corporate social responsibility.  New federal and state statutes have imposed due diligence requirements on companies with the specific intent of addressing human rights concerns, ranging from forced labor to the ongoing conflict in the Democratic Republic of Congo.  Courts continue to grapple with the potential scope of corporate liability under the Alien Tort Statute (“ATS”).  At the international level, the concept of the corporate “responsibility to respect” human rights continues to gain credence, at the same time as access to water was recognized as a human right by the United Nations.

As lawyers, we advise clients on developments in both “hard law” requirements and “soft law” expectations for companies in the area of human rights and social responsibility.  The intersection of what is required and what is expected of companies can present both challenges and opportunities.  In no specific order, here are five “big developments” that we think will impact corporations, and the expectations of corporate stakeholders, in 2011 and beyond.

• The SEC, Conflict Minerals, and Disclosure of Payments.  Buried in the Dodd-Frank financial reform legislation are two provisions that impose significant new disclosure requirements on companies.  Section 1502 requires companies that utilize certain conflict minerals to conduct and disclose due diligence on their supply chains in order to identify whether the sourcing of these minerals is supporting the conflict in the Democratic Republic of Congo.  Section 1504 requires companies in the extractive sector to report on taxes, royalties, fees, and other material benefits paid to foreign governments and the United States.  Compliance with these provisions will be a significant challenge for many companies.  In mid-December, the SEC released proposed rules pursuant to these two provisions, and final rules are expected to be in place by April 2011, although under the new Congress implementation of these rules may be delayed.

• Ruggie's Draft Guiding Principles.  The U.N. Special Representative on Business and Human Rights, John Ruggie, released his Draft Guiding Principles for the implementation of the three-part “Protect, Respect, and Remedy” framework first set forth in his 2008 report to the U.N. Human Rights Council.  Institutions ranging from the European Parliament to the OECD have already cited certain provisions of the framework, especially with regard to the corporate responsibility to respect human rights -- that is, not to infringe on rights -- and its central component of human rights due diligence.

• Water is a Human Right.  In July, the U.N. General Assembly declared access to safe water to be a human right.  In September, the U.N. Human Rights Council adopted a resolution recognizing access to clean water and sanitation as a fundamental human right, “equal to all other human rights” and capable of legal enforcement.  These developments came at the same time as increasing water scarcity is impacting communities, and companies, around the world.  Companies will likely find that stakeholders increasingly expect due diligence efforts, especially with regard to human rights impacts, to include assessments of corporate impacts on community water resources.

• The Second Circuit Declares that Companies are Not Proper Defendants Under the ATS.  In a controversial opinion, the Second Circuit Court of Appeals held in Kiobel v. Royal Dutch Petroleum that corporations cannot be properly sued under the ATS for violations of customary international law.  Already cited by other courts, and by many defendant briefs, this opinion, whether or not it is upheld, stands as one of the most significant ATS decisions to date.

• California Transparency in Supply Chains Act.  Retailers and manufacturers operating in California with global receipts in excess of $100 million will now be required to disclose what efforts they are taking, if any, to “evaluate and address” the risks of slavery and human trafficking in their supply chains.  This requirement applies to a wide range of companies, ranging from apparel companies that have grappled with concerns about their supply chains for many years, to companies in other sectors for which these due diligence requirements represent a new challenge.

As the New Year begins, we will continue to monitor these developments, and others, in the dynamic field of corporate social responsibility and the law.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A resolution adopted by the European Parliament on November 25, 2010 increases the likelihood that the days of CSR as a purely voluntary initiative are numbered. Approved by a margin of 480 votes to 48, the resolution on corporate social responsibility in international trade agreements calls on the European Commission to include a CSR clause in all of the European Union’s trade agreements.

Such a clause would require, inter alia, companies to publish “CSR balance sheets,” report on due diligence, and seek free, prior and informed consultation with local stakeholders.  The proposed CSR clause would also provide for monitoring and judicial cooperation in pursuing and punishing breaches of CSR commitments.  More generally, the resolution also calls on the Commission to reinforce its promotion of CSR in multilateral trade policies and to conduct sustainability impact assessments before and after trade agreements are signed.

According to its explanatory note, the resolution was drafted in recognition of the reality that for “ordinary people throughout the world, the expansion in international trade is justified only if it contributes to economic development, to job creation and to improved living standards.”

The note provides moral, socio-economic, and political justifications for Europe to address CSR in the context of its trade agreements:

• First, European companies enjoying the benefits of trade must be asked to conduct themselves in a socially and environmentally responsible manner in developing countries and elsewhere. 
• Second, “non-compliance with CSR principles constitutes a form of social and environmental dumping” in developing countries to the detriment of companies and workers in Europe, who are required to meet more stringent social and environmental standards. 
• Third, the EU’s trade policy must be consistent with and complimentary of its other foreign policy priorities on matters such as environmental protection and development aid.

Many of the EU’s international trade agreements already address social and environmental concerns. The significance of the proposed CSR clause is that it would place an onus on companies – not just the State parties to the trade agreements – to act in a socially and environmentally responsible manner.  Also, while recent trade agreements concluded by the EU with South Korea, Colombia and Peru vaguely mention the State parties’ intent to promote CSR, the proposed CSR clause would require specific actions by companies.  Among the proposed requirements for the CSR clause are the following:

• Companies would be required to publish CSR balance sheets in two or three year intervals in order to reinforce transparency and reporting and encourage visible and credible CSR practices;
• Companies would be required to conduct due diligence in order to identify and prevent  "violations of human and environmental rights, corruption or tax evasion, including in their subsidiaries and supply chains";
• Companies would be required to commit to "free, open and informed prior consultation" with local and independent stakeholders prior to commencing a project that impacts a local community.

The resolution envisions that other provisions enforcing implementation of CSR would accompany the CSR clause.  It recommends, for example, that in addition to establishing appropriate investigatory mechanisms, State parties should be willing to "name and shame" companies in serious breach of their CSR commitments.  The resolution also foresees judicial cooperation and training as a means of facilitating judicial redress for victims of inappropriate corporate conduct.

The European Parliament’s resolution is a non-legislative act and thus not enforceable.  It is now up to the European Commission to decide whether to incorporate the Parliament’s proposals into binding legislation.  Although some companies will balk at any attempts to limit the voluntary nature of CSR, others, especially those that already seek to operate in a socially and environmentally responsible manner, may welcome the prospect of all companies being required to operate by the same rules in the context of particular trade agreements.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Foley Hoag's Emerging Enterprise Center blog has recently published several posts on a preliminary staff report, recently released by the Federal Trade Commission ("FTC"), which sets out a proposed framework for protecting privacy in the digital economy.  Specifically, the report endorses the implementation of a “Do Not Track” mechanism to allow consumers to choose whether to allow the collection of data regarding their online activities.

The most recent post on the Emerging Enterprise Center blog is copied below and reflects the tensions that exist between companies that depend upon tracking technologies and consumer advocates seeking more protection over their personal data.  As summarized by our Security, Privacy and the Law practice, two key predictions are worthy of note:

1. The industry powers will fight against “Do Not Track” and will win that fight.  
2. Industry will accept some other form of regulation in exchange for defeating “Do Not Track.”

From a corporate social responsibility perspective, the current debate on protecting consumer privacy online needs to recognize that the right to privacy is a basic human right. At first glance, the collection by corporations of isolated bits of data about our activities online may appear to be trivial -- especially when compared to the systems that authoritarian governments have been building to monitor and filter Internet traffic.  But as an infamous class project conducted last year at Fordham Law School demonstrates, the aggregation of many isolated bits of data about an individual can end up taking a major "byte" out of their privacy.

Multi-stakeholder groups like the Global Network Initiative have been working for the last several years to protect and advance the human rights of freedom of expression and privacy in the information technology sector.  Instead of accepting alternative regulation in exchange for defeating "Do Not Track", industry heavyweights might want to consider redoubling their commitment to multi-stakeholder processes that could generate an industry-wide code of conduct that addresses the core concerns raised by the FTC's report.

                                                           *    *    *    *    *    *

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Yesterday, the Securities and Exchange Commission (“SEC”) posted proposed rules pursuant to Section 1502 (conflict minerals) and Section 1504 (disclosure of payments to governments) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

The proposed rules are open for comment until January 31, 2011.  Final rules will be issued no later than April 15, 2011.

We will be providing further analysis of both of these proposed rules.  Based on an initial review, key points include:

Section 1502 (Conflict Minerals)

• The proposed reporting requirements apply to all SEC issuers who file reports with the Commission, including foreign private issuers and smaller reporting companies, for which conflict minerals are "necessary to the functionality or production of a product manufactured" or contracted to be manufactured by such an issuer.  Conflict minerals consist of columbite-tantalite (tantalum), wolframite (tungsten), cassiterite (tin), and gold.  The rules apply even if only small amounts of such minerals are utilized. 
• If an issuer determines through a "reasonable country of origin inquiry" process that the conflict minerals it uses did not originate in the Democratic Republic of the Congo or adjoining countries ("DRC countries"), it will be required to disclose this determination in its annual 10-K report.  The annual report must also state what "reasonable country of origin inquiry" process the issuer undertook.  The issuer would be required to maintain records demonstrating that its conflict minerals did not originate in the DRC countries.
• If an issuer either determines that its conflict minerals originated in the DRC countries, or cannot conclude that they did not originate in the DRC countries, the issuer will be required to disclose this information in its annual report. The issuer must then furnish a Conflict Minerals Report as an exhibit to the annual report, and must disclose the Internet address at which this exhibit is available.
• The Conflict Minerals Report must describe the due diligence that the issuer conducted on the source and chain of custody of its conflict minerals.  Issuers will be required to describe: products that are not "DRC conflict free"; the country of origin of those conflict minerals; the facilities used to process those minerals; and efforts taken to locate the mine or source of the minerals with the greatest possible specificity.
• The Conflict Minerals Report must be audited by an independent private sector auditor. Issuers must identify the auditor and certify the audit. 
• Issuers will be required to provide their first disclosures after their first full fiscal year following the promulgation of the final rules.

Section 1504 (Disclosure of Payments by Resource Extraction Issuers)

• All U.S. and foreign companies engaged in the commercial development of oil, natural gas, or minerals that are required to file annual reports with the SEC are subject to the rule, regardless of size. Commercial development encompasses exploration, processing, export, and other “significant actions,” but does not include ancillary activities such as producing equipment utilized in commercial development or providing transport.
• Covered companies must report on taxes, royalties, fees, production entitlements, bonuses, and other material benefits paid to foreign government and the Federal Government that are not de miminis. The SEC does not plan to define "de minimis." These benefits can be in cash or in kind.
• Covered companies must report the type and total amount of payments made to a government for each project. The SEC does not propose to define the term "project."
• Covered companies must report on such payments made by subsidiaries or entities under their control, where the definition of control is taken from existing securities law.
• Covered companies must disclose a brief statement of this information in their annual 10-K reports, which refers investors to detailed information provided in two exhibits that would be furnished to the SEC as part of the 10-K. One of the two exhibits would include information in XBRL format, an interactive data format.
• Disclosure will be required in annual reports relating to fiscal years ending on or after April 15, 2012.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Early last week, the Ninth Circuit Court of Appeals revived a tort case brought by 25 members of the Peruvian Achuar indigenous group and Amazon Watch against Occidental Petroleum ("Occidental").  Plaintiffs allege that the company's operations in the Peruvian Amazon resulted in severe contamination of the land and rivers in the region and that, as a result, they have suffered adverse health effects and negative impacts on their livelihoods.

Plaintiffs originally filed suit in 2007 in state court and asserted common law tort claims including negligence, fraud and misrepresentation, trespass, and strict liability.  Plaintiffs also brought claims under California's Unfair Competion Law.  The case was subsequently removed to federal court and, in April 2008, the District Court for the Central District of California dismissed the case on forum non conveniens grounds.

The Carijano litigation is notable in part due to the fact that plaintiffs have sought redress through common law tort claims rather than through claims asserted pursuant to the Alien Tort Statute.  The ultimate viability of plaintiffs' claims remains uncertain, as the litigation has only dealt with jurisdictional issues to date.  Those seeking to hold corporate defendants liable in U.S. courts for acts outside the United States will be watching the future progression of this case closely.

Last week's Ninth Circuit decision also raises important considerations for litigants in cases where an alternate forum may be available outside the United States.  Based on the facts of the case, the Court found that the district court had abused its discretion in finding that Peru represented an adequate alternate forum for this litigation.  The Ninth Circuit observed that Occidental had consented to jurisdiction in Peru without waiving the statute of limitations defense that would be available under Peruvian law, and found that dismissal on the basis of forum non conveniens is improper when the lawsuit would be time-barred in the alternate jurisdiction.  Specifically, the Court said that

where there is reason to believe that a defendant will seek immediate dismissal based on the foreign forum's statute of limitations, dismissal should be conditioned on waiting any statute of limitations defenses that would not be available in the domestic forum.

In addition, the Ninth Circuit found that the district court had failed to weigh plaintiffs' expert testimony which stated that Peru did not offer a practical remedy for plaintiffs, especially with regard to damages.  The Court also found that insufficient deference was given to plaintiffs' choice of forum. 

Finally, the Court found that a dismissal on forum non conveniens grounds should have been conditioned with certain requirements, including a commitment that Occidental would waive the statute of limitations defense.  The Court also noted that "[w]hen there is reason to beliveve that enforcing a judgment in a foreign country would be problematic, courts have required assurances that a defendant will satisfy any judgment as a condition of dismissal."

As noted above, this case raises the question of whether common law tort claims may support litigation by plaintiffs on the basis of corporate activities, and alleged abuses, outside the United States.  The Ninth Circuit's dismissal also raises key concerns for defendants seeking to dismiss foreign plaintiffs' claims on the basis of forum non conveniens, especially where certain claims and defenses are available in one forum and not the other.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The U.N. Special Representative for Business and Human Rights, John Ruggie, has released the long-awaited draft of his final report, the Guiding Principles for the Implementation of the United Nations "Protect, Respect and Remedy’" Framework (.pdf).  The Guiding Principles are the culmination of the Special Representative’s mandate, which began in 2005, and which will conclude when the final report is delivered to the U.N. Human Rights Council in June 2011.  The draft is open for public comment until January 31, 2011.

The Guiding Principles build on the Special Representative’s previous reports and are organized around the three-pillar “Protect, Respect and Remedy” policy framework first set forth in his 2008 report (.pdf).  Under this framework:

• States have a duty to protect against human rights abuses by third parties, including companies;
• Companies have a responsibility to respect human rights; and
• Victims of human rights abuses must have access to effective remedies.

As noted by the U.N. Special Representative, this three-pillar policy framework “has already influenced policy development by Government and international institutions, business policies and practices, as well as the analytical and advocacy work of trade unions and civil society organizations.”  Through the Principles, the Special Representative has not created “new international legal obligations,” but rather has elaborated “the implications of existing standards and practices for States and business” and integrated them around a comprehensive framework.

There are 29 principles in all, each with detailed commentary.  Corporate leaders, and their stakeholders, should not limit their attention to the 11 principles specific to the “corporate responsibility to protect” pillar of the Special Representative’s policy framework.  All of the principles have important implications for the business community.  In future posts, we will provide a deeper analysis of several specific elements of the Guiding Principles.  In the text below, we provide an overview of key points, as well as questions, raised by the draft report.

• Email This
• Print
• Comments
• Trackbacks
• Share Link